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CARPIO, J.:
The Case
This is a petition fore review on certiorari under Rule 45 of the Rules of Court,
seeking to set aside the Decision1 of the Court of Appeals affirming the
Decision2 of the Regional Trial Court, Branch 108, Pasay City. The trial court
upheld the writ of attachment and the declaration of default on petitioner while
ordering her to pay private respondent P109,376.95 plus 18 percent interest
per annum, 25 percent attorney’s fees and costs of suit.
The Facts
On the first shipment, petitioner requested for seven days within which to pay
private respondent. However, for the next three shipments, March 17, 24 and
31, 1988, petitioner failed to pay private respondent shipping charges
amounting to P109, 376.95.4
The trial court granted the request of its sheriff for assistance from their
counterparts in RTC, Pampanga. Thus, on October 28, 1988, Sheriff Alfredo
San Miguel of RTC Pampanga served on petitioner’s household help in San
Fernando, Pampanga, the Notice of Levy with the Order, Affidavit and Bond.7
The trial court granted the Motion to Discharge Attachment on January 13,
1989 upon filing of petitioner’s counter-bond. The trial court, however, did not
rule on the question of jurisdiction and on the validity of the writ of preliminary
attachment.
Petitioner filed her Answer16 on June 16, 1989, maintaining her contention that
the venue was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for July
18, 1989 at 8:30 a.m. and requiring the parties to submit their pre-trial briefs.
Meanwhile, private respondent filed a Motion to Sell Attached Properties but
the trial court denied the motion.
On motion of petitioner, the trial court issued an Order resetting the pre-trial
from July 18, 1989 to August 24, 1989 at 8:30 a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an
Order17 terminating the pre-trial and allowing the private respondent to present
evidence ex-parte on September 12, 1989 at 8:30 a.m.. The Order stated that
when the case was called for pre-trial at 8:31 a.m., only the counsel for private
respondent appeared. Upon the trial court’s second call 20 minutes later,
petitioner’s counsel was still nowhere to be found. Thus, upon motion of
private respondent, the pre-trial was considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of the
Order terminating the pre-trial. Petitioner explained that her counsel arrived 5
minutes after the second call, as shown by the transcript of stenographic
notes, and was late because of heavy traffic. Petitioner claims that the lower
court erred in allowing private respondent to present evidence ex-parte since
there was no Order considering the petitioner as in default. Petitioner
contends that the Order of August 24, 1989 did not state that petitioner was
declared as in default but still the court allowed private respondent to present
evidence ex-parte.18
On October 6, 1989, the trial court denied the Motion for Reconsideration and
scheduled the presentation of private respondent’s evidence ex-parte on
October 10, 1989. 1âw phi 1.nêt
On October 10, 1989, petitioner filed an Omnibus Motion stating that the
presentation of evidence ex-parte should be suspended because there was
no declaration of petitioner as in default and petitioner’s counsel was not
absent, but merely late.
On October 18, 1989, the trial court denied the Omnibus Motion.19
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court
of Appeals denied the same in a Resolution dated May 20, 1996.
The Issues
I.
II.
III.
WHETHER THERE WAS IMPROPER VENUE.
IV.
This Court has long settled 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 thereafter."21 This phrase
refers to the date of 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.
In Davao Light & Power Co., Inc. v. Court of Appeals,22 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 - issuance
of summons, order of attachment and writ of attachment - 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 xxx." (Emphasis supplied.)
The trial court had the authority to issue the Writ of Attachment on September
27 since a motion for its issuance can be filed "at the commencement of the
action." However, on the day the writ was implemented, the trial court should
have, previously or simultaneously with the implementation of the writ,
acquired jurisdiction over the petitioner. Yet, as was shown in the records of
the case, the summons was actually served on petitioner several months after
the writ had been implemented.
The rules provide for certain remedies in cases where personal service could
not be effected on a party. Section 14, Rule 14 of the Rules of Court provides
that whenever the defendant’s "whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court, be effected
upon him by publication in a newspaper of general circulation x x x." Thus, if
petitioner’s whereabouts could not be ascertained after the sheriff had served
the summons at her given address, then respondent could have immediately
asked the court for service of summons by publication on petitioner.25
Moreover, as private respondent also claims that petitioner was abroad at the
time of the service of summons, this made petitioner a resident who is
temporarily out of the country. This is the exact situation contemplated in
Section 16,26 Rule 14 of the Rules of Civil Procedure, providing for service of
summons by publication.
Improper Venue
Petitioner assails the filing of this case in the RTC of Pasay and points to a
provision in private respondent’s invoice which contains the following:
"3. If court litigation becomes necessary to enforce collection, an
additional equivalent (sic) to 25% of the principal amount will be
charged. The agreed venue for such action is Makati, Metro Manila,
Philippines."28
Based on this provision, petitioner contends that the action should have been
instituted in the RTC of Makati and to do otherwise would be a ground for the
dismissal of the case.
We resolve to dismiss the case on the ground of improper venue but not for
the reason stated by petitioner.
The Rules of Court provide that parties to an action may agree in writing on
the venue on which an action should be brought.29 However, a mere
stipulation on the venue of an action is not enough to preclude parties from
bringing a case in other venues.30 The parties must be able to show that such
stipulation is exclusive. Thus, absent words that show the parties’ intention to
restrict the filing of a suit in a particular place, courts will allow the filing of a
case in any venue, as long as jurisdictional requirements are followed. Venue
stipulations in a contract, while considered valid and enforceable, do not as a
rule supersede the general rule set forth in Rule 4 of the Revised Rules of
Court.31 In the absence of qualifying or restrictive words, they should be
considered merely as an agreement on additional forum, not as limiting venue
to the specified place.32
In the instant case, the stipulation does not limit the venue exclusively to
Makati. There are no qualifying or restrictive words in the invoice that would
evince the intention of the parties that Makati is the "only or exclusive" venue
where the action could be instituted. We therefore agree with private
respondent that Makati is not the only venue where this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal
actions is "where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiffs resides, at the election of
the plaintiff."33 The exception to this rule is when the parties agree on an
exclusive venue other than the places mentioned in the rules. But, as we have
discussed, this exception is not applicable in this case. Hence, following the
general rule, the instant case may be brought in the place of residence of the
plaintiff or defendant, at the election of the plaintiff (private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the lower
court) was not alleged in the complaint. Rather, what was alleged was the
postal address of her sole proprietorship, Air Swift International. It was only
when private respondent testified in court, after petitioner was declared in
default, that she mentioned her residence to be in Better Living Subdivision,
Parañaque City.
In the instant case, it was established in the lower court that petitioner resides
in San Fernando, Pampanga35 while private respondent resides in Parañaque
City.36 However, this case was brought in Pasay City, where the business of
private respondent is found. This would have been permissible had private
respondent’s business been a corporation, just like the case in Sy v. Tyson
Enterprises, Inc. However, as admitted by private respondent in her
Complaint37 in the lower court, her business is a sole proprietorship, and as
such, does not have a separate juridical personality that could enable it to file
a suit in court.38 In fact, there is no law authorizing sole proprietorships to file a
suit in court.39
All these considered, private respondent should have filed this case either in
San Fernando, Pampanga (petitioner’s residence) or Parañaque (private
respondent’s residence). Since private respondent (complainant below) filed
this case in Pasay, we hold that the case should be dismissed on the ground
of improper venue.
The rules on venue, like other procedural rules, are designed to insure a just
and orderly administration of justice or the impartial and evenhanded
determination of every action and proceeding. Obviously, this objective will not
be attained if the plaintiff is given unrestricted freedom to choose where to file
the complaint or petition.47
We find no reason to rule on the other issues raised by petitioner. 1âw phi 1.nêt
SO ORDERED.
FIRST DIVISION
Isaias P. Dicdican and Sylva G. Aguirre-Paderanga for Aboitiz & Co., Inc.
QUIASON, J.:
I
In a complaint dated April 24, 1982 filed with the Court of First Instance of
Cebu, now Regional Trial Court, (Civil Case No. R-21761), respondent Aboitiz
and Company, Inc. (Aboitiz) sought to collect from petitioners a sum of money
representing payments for: (1) the unpaid amortizations of a loan; (2)
technical and managerial services rendered; and (3) the unpaid installments
of the equipment provided by respondent Aboitiz to petitioners (Rollo, p. 37).
Acting on the ex parte application for attachment, the Executive Judge of the
Court of First Instance of Cebu, issued on May 14, 1982, an order directing
the issuance of the writ of preliminary attachment against the property of
petitioners upon the filing by respondent Aboitiz of an attachment bond.
Subsequently, the case was raffled to Branch 11 of the Court of First Instance
of Cebu, which issued a writ of attachment addressed to the Provincial
Sheriffs of Cebu and the City Sheriff of Davao City. It was the Sheriff of Davao
City who enforced the writ of attachment, resulting in the seizure of heavy
construction equipment, motor vehicle spare parts, and other personal
property with the aggregate value of P15,000,000.00. The said court also
granted the motion of respondent Aboitiz to take possession and custody of
the attached property of petitioners and ordered the Provincial Sheriff of
Davao to deliver the property to respondent Aboitiz.
Petitioners moved for a bill of particulars and to set aside the ex parte writ of
attachment. Finding merit in the motion to set aside the writ, Branch 11
ordered on July 6, 1982 the lifting of the writ and, consequently, the discharge
of the property levied upon.
Respondent Aboitiz filed an urgent ex parte motion, praying for the stay of the
July 6, 1982 Order for a period of 15 days for it to be able to appeal the order.
The motion was favorably acted upon.
However, on July 13, 1982, respondent Aboitiz filed a notice of dismissal of its
complaint in accordance with Section 1, Rule 17 of the Revised Rules of
Court. Consequently, Branch 11 issued an order confirming the notice of
dismissal, emphasizing that all orders of the court issued prior to the filing of
said notice of dismissal had been rendered functus oficio, and considering all
pending incidents in the case as moot and academic.
Petitioner Eleazar Adlawan filed a motion praying that the July 6, 1982 Order
be implemented and enforced. On December 20, however, Branch 11 denied
the motion on account of the filing by respondent Aboitiz before Branch 16 of
the Court of First Instance of Cebu in Lapu-lapu City of an action for delivery
of personal property (Civil Case No. 619-L), and the filing by petitioner Eleazar
Adlawan before Branch 10 of the same court of an action for damages in
connection with the seizure of his property under the writ of attachment.
In the replevin suit, Branch 16 ordered the seizure and delivery of the property
described in the complaint. Said property were later delivered by the provincial
sheriff to respondent Aboitiz. Alleging that while his office was situated in
Cebu City, Adlawan was a resident of Minglanilla, and therefore, the Lapu-
lapu City court should not entertain the action for replevin. Petitioner Eleazar
Adlawan filed an omnibus motion praying for the reconsideration and
dissolution of the writ of seizure, the retrieval of the property seized, and the
dismissal of the complaint. He also averred that the property seized were
in custodia legis by virtue of the writ of attachment issued by Branch 11. His
omnibus motion was denied. Subsequently, he filed a motion for
reconsideration which was not granted.
The denial of his omnibus motion led petitioner Eleazar Adlawan to file a
petition for certiorari and mandamus in the Supreme Court (G.R. No. 63225).
The Third Division of this Court ruled on April 3, 1990 that since attachment is
an ancillary remedy, the withdrawal of the complaint left it with no leg to stand
on. Thus, the Court disposed of the case as follows:
The Decision in G.R. No. 63225 having become final and executory, entry of
judgment was made on November 15, 1990. This should have terminated the
controversy between petitioners and respondent Aboitiz insofar as the
Supreme Court was concerned, but that was not to be. On September 9, 1983
respondent Aboitiz filed against petitioners two complaints for collection of
sums of money with prayers for the issuance of writs of attachment in the
Regional Trail Court, Branch 23, Cebu City, docketed as Civil Cases Nos.
CEB-1185 and CEB-1186. The complaint in Civil Case No. CEB-1185 alleged
that petitioner Eleazar Adlawan (defendant therein) was awarded a contract
for the construction of the Tago Diversion Works for the Tago River Irrigation
Project by the National Irrigation Administration and that respondent Aboitiz
(plaintiff therein) loaned him money and equipment, which indebtedness as of
June 30, 1983 totaled P13,430,259.14. Paragraph 16 of the complaint states:
The complaint in Civil Case No. CEB-1186 alleged that petitioner Eleazar
Adlawan (defendant therein) was awarded a contract for the construction of
the Lasang River Irrigation Project by the National Irrigation Administration
and that respondent Aboitiz (plaintiff therein) loaned him money and
equipment, which indebtedness as of June 30, 1983 totalled P5,370,672.08.
Paragraph 15 of the complaint is similarly worded as paragraph 16 of the
complaint in Civil Case No. CEB-1185.
Civil Case No. CEB-1185 was raffled to the Regional Trial Court, Branch 6,
presided by respondent Judge Ramon Am. Torres. On September 14, 1983,
respondent Judge ordered the issuance of a writ of attachment upon
respondent Aboitiz' filing of a bond of P5,000,000.00. Similarly, in Civil Case
No. CEB-1186, which was raffled to Branch 23, presiding Judge Emilio A.
Jacinto ordered the issuance of a writ of attachment upon the filing of a bond
of P2,500,000.00. Accordingly, in Civil Case No. CEB-1185, the Acting
Provincial Sheriff of Cebu issued separate writs dated September 26, 1983
addressed to the Sheriffs of Cebu, Davao and Metro Manila. No writ of
preliminary attachment was, however, issued in Civil Case No. CEB-1186.
Petitioners then filed in Civil Cases Nos. CEB-1185 and CEB-1186 urgent
motions to hold in abeyance the enforcement of the writs of attachments.
They alleged in the main that since their property had been previously
attached and said attachment was being questioned before the Supreme
Court in G.R. No. 63225, the filing of the two cases, as well as the issuance of
the writs of attachment, constituted undue interference with the processes of
this court in the then pending petition involving the same property.
Petitioners then filed a rejoinder to said comment, contending that since the
property subject of the writ of attachment have earlier been attached or
replevied, the same property were under custodia legis and therefore could
not be the subject of other writs of attachment.
On December 12, 1983, respondent Judge issued an order finding no merit in
petitioners' motion for reconsideration and directing the sheriffs of Cebu,
Davao and Metro Manila "to proceed with the enforcement and
implementation of the writs of preliminary attachment." Respondent Judge
ruled that the writs of attachment were issued on the basis of the supporting
affidavits alleging that petitioner had removed or disposed of their property
with intent to defraud respondent Aboitiz (Rollo, pp. 109-113).
On December 15, petitioners filed an ex parte motion praying: (1) that the
December 12, 1983 Order be set for hearing; (2) that they be given 15 days
within which to either file a motion for reconsideration or elevate the matter to
this Court or the then Intermediate Appellate Court; and (3) that within the
same 15-day period the implementation or enforcement of the writs of
attachment be held in abeyance.
On the same day, respondent Judge issued an order holding in abeyance the
enforcement of the writs of preliminary attachment in order to afford
petitioners an opportunity to seek their other remedies (Rollo, p. 116).
Petitioners contended that in Civil Case No. 21761, Branch 11 had ruled that
the loan for which the mortgage was executed was contracted in good faith,
as it was necessary for them to continue their business operations even after
respondent Aboitiz had stopped giving them financial aid.
II
The resolution of this case centers on the issue of the legality of the writ of
attachment issued by respondent Judge in the consolidated cases for
collection of sums of money.
The affidavit submitted by respondent Aboitiz in support of its prayer for the
writ of attachment does not meet the requirements of Rule 57 of the Revised
Rules of Court regarding the allegations on impending fraudulent removal,
concealment and disposition of defendant's property. As held in Carpio v.
Macadaeg, 9 SCRA 552 (1963), to justify a preliminary attachment, the
removal or disposal must have been made with intent to defraud defendant's
creditors. Proof of fraud is mandated by paragraphs (d) and (e) of Section 1,
Rule 57 of the Revised Rules of Court on the grounds upon which attachment
may issue. Thus, the factual basis on defendant's intent to defraud must be
clearly alleged in the affidavit in support of the prayer for the writ of
attachment if not so specifically alleged in the verified complaint. The affidavit
submitted by respondent Aboitiz states:
That the total amount due to the plaintiff in the above-entitled case
is P13,430,259.14, excluding interests and claim for damages and
is as much the sum for which an order of attachment is herein
sought to be granted; above all legal counter-claims on the part of
the defendants.
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It is evident from said affidavit that the prayer for attachment rests on the
mortgage by petitioners of 11 parcels of land in Cebu, which encumbrance
respondent Aboitiz considered as fraudulent concealment of property to its
prejudice. We find, however, that there is no factual allegation which may
constitute as a valid basis for the contention that the mortgage was in fraud of
respondent Aboitiz. As this Court said in Jardine-Manila Finance, Inc. v. Court
of Appeals, 171 SCRA 636 (1989), "[T]he general rule is that the affidavit is
the foundation of the writ, and if none be filed or one be filed which wholly fails
to set out some facts required by law to be stated therein, there is no
jurisdiction and the proceedings are null and void."
This procedure should be followed because, as the Court has time and again
said, attachment is a harsh, extraordinary and summary remedy and the rules
governing its issuance must be construed strictly against the applicant. Verily,
a writ of attachment can only be granted on concrete and specific grounds
and not on general averments quoting perfunctorily the words of the Rules
(D.P. Lub Oil Marketing Center, Inc. v. Nicolas, 191 SCRA 423 [1990]).
The judge before whom the application is made exercises full discretion in
considering the supporting evidence proffered by the applicant. One
overriding consideration is that a writ of attachment is substantially a writ of
execution except that it emanates at the beginning, instead of at the
termination of the suit (Santos v. Aquino, Jr., 205 SCRA 127 [1992]; Tay Chun
Suy v. Court of Appeals, 212 SCRA 713 [1992]).
We need not discuss the issue of whether or not Civil Cases Nos. CEB-1185
and CEB-1186 constituted undue interference with the proceedings in G.R.
No. 63225 in view of the entry of judgment in the latter case.
SO ORDERED.
x ---------------------------------------- x
YNARES-SANTIAGO, J.:
Before us are consolidated petitions for review both filed by Philippine Bank of
Communications; one against the May 24, 1994 Decision of respondent Court
of Appeals in CA-G.R. SP No. 328631 and the other against its March 31,
1995 Decision in CA-G.R. SP No. 32762.2 Both Decisions set aside and
nullified the August 11, 1993 Order3 of the Regional Trial Court of Manila,
Branch 7, granting the issuance of a writ of preliminary attachment in Civil
Case No. 91-56711.
On May 31, 1993, petitioner filed a Motion for Attachment,4 contending that
violation of the trust receipts law constitutes estafa, thus providing ground for
the issuance of a writ of preliminary attachment; specifically under paragraphs
"b" and "d," Section 1, Rule 57 of the Revised Rules of Court. Petitioner
further claimed that attachment was necessary since private respondents
were disposing of their properties to its detriment as a creditor. Finally,
petitioner offered to post a bond for the issuance of such writ of attachment.
The Motion was duly opposed by private respondents and, after the filing of a
Reply thereto by petitioner, the lower court issued its August 11, 1993 Order
for the issuance of a writ of preliminary attachment, conditioned upon the filing
of an attachment bond. Following the denial of the Motion for Reconsideration
filed by private respondent Filipinas Textile Mills, both private respondents
filed separate petitions for certiorari before respondent Court assailing the
order granting the writ of preliminary attachment. 1âwphi1.nêt
"1. Holding that there was no sufficient basis for the issuance of the writ
of preliminary attachment in spite of the allegations of fraud,
embezzlement and misappropriation of the proceeds or goods entrusted
to the private respondents;
2. Disregarding the fact that the failure of FTMI and Villanueva to remit
the proceeds or return the goods entrusted, in violation of private
respondents' fiduciary duty as entrustee, constitute embezzlement or
misappropriation which is a valid ground for the issuance of a writ of
preliminary attachment."6
Section 1 (b) and (d), Rule 57 of the then controlling Revised Rules of Court,
provides, to wit –
2. I have read and understood its contents which are true and
correct of my own knowledge;
Again, it lacks particulars upon which the court can discern whether or not a
writ of attachment should issue.
Petitioner cannot insist that its allegation that private respondents failed to
remit the proceeds of the sale of the entrusted goods nor to return the same is
sufficient for attachment to issue. We note that petitioner anchors its
application upon Section 1(d), Rule 57. This particular provision was
adequately explained in Liberty Insurance Corporation v. Court of Appeals,8 as
follows –
To reiterate, petitioner's Motion for Attachment fails to meet the standard set
in D.P. Lub Oil Marketing Center, Inc. v. Nicolas,10 in applications for
attachment. In the said case, this Court cautioned –
As was frowned upon in D.P. Lub Oil Marketing Center, Inc.,11 not only was
petitioner's application defective for having merely given general averments;
what is worse, there was no hearing to afford private respondents an
opportunity to ventilate their side, in accordance with due process, in order to
determine the truthfulness of the allegations of petitioner. As already
mentioned, private respondents claimed that substantial payments were made
on the proceeds of the trust receipts sued upon. They also refuted the
allegations of fraud, embezzlement and misappropriation by averring that
private respondent Filipinas Textile Mills could not have done these as it had
ceased its operations starting in June of 1984 due to workers' strike. These
are matters which should have been addressed in a preliminary hearing to
guide the lower court to a judicious exercise of its discretion regarding the
attachment prayed for. On this score, respondent Court of Appeals was
correct in setting aside the issued writ of preliminary attachment.
Time and again, we have held that the rules on the issuance of a writ of
attachment must be construed strictly against the applicants. This stringency
is required because the remedy of attachment is harsh, extraordinary and
summary in nature. If all the requisites for the granting of the writ are not
present, then the court which issues it acts in excess of its jurisdiction.12
WHEREFORE, for the foregoing reasons, the instant petitions are DENIED.
The decision of the Court of Appeals in CA-G.R. SP No. 32863 and CA-G.R.
SP No. 32762 are AFFIRMED. No pronouncement as to costs. 1âwphi1.nêt
SO ORDERED.
FIRST DIVISION
DECISION
SERENO, C.J.:
The instant case is an offshoot of this Court's Decision dated 13 January 2004 (2004
Decision) in a related case entitled Information Technology Foundation of the
Philippines v. Commission on Elections.1 chanrobles law
In the 2004 case, We declared void the automation contract executed by respondent
Mega Pacific eSolutions, Inc. (MPEI) and the Commission on Elections (COMELEC) for
the supply of automated counting machines (ACMs) for the 2004 national elections.
The present case involves the attempt of petitioner Republic of the Philippines to cause
the attachment of the properties owned by respondent MPEI, as well as by its
incorporators and stockholders (individual respondents in this case), in order to secure
petitioner's interest and to ensure recovery of the payments it made to respondents for
the invalidated automation contract.
Summarized below are the relevant facts of the case, some of which have already been
discussed in this Court's 2004 Decision:
chanRoble svirtual Lawlib ra ry
The Facts
Republic Act No. 8436 authorized the COMELEC to use an automated election system
for the May 1998 elections. However, the automated system failed to materialize and
votes were canvassed manually during the 1998 and the 2001 elections.
For the 2004 elections, the COMELEC again attempted to implement the automated
election system. For this purpose, it invited bidders to apply for the procurement of
supplies, equipment, and services. Respondent MPEI, as lead company, purportedly
formed a joint venture - known as the Mega Pacific Consortium (MPC) - together with
We Solv, SK C & C, ePLDT, Election.com and Oracle. Subsequently, MPEI, on behalf of
MPC, submitted its bid proposal to COMELEC.
The COMELEC evaluated various bid offers and subsequently found MPC and another
company eligible to participate in the next phase of the bidding process.4 The two
companies were referred to the Department of Science and Technology (DOST) for
technical evaluation. After due assessment, the Bids and Awards Committee (BAC)
recommended that the project be awarded to MPC. The COMELEC favorably acted on
the recommendation and issued Resolution No. 6074, which awarded the automation
project to MPC.
Despite the award to MPC, the COMELEC and MPEI executed on 2 June 2003 the
Automated Counting and Canvassing Project Contract (automation contract)5 for the
aggregate amount of P1,248,949,088. MPEI agreed to supply and deliver 1,991 units of
ACMs and such other equipment and materials necessary for the computerized electoral
system in the 2004 elections. Pursuant to the automation contract, MPEI delivered
1,991 ACMs to the COMELEC. The latter, for its part, made partial payments to MPEI in
the aggregate amount of P1.05 billion.
The full implementation of the automation contract was rendered impossible by the fact
that, after a painstaking legal battle, this Court in its 2004 Decision declared the
contract null and void.6 We held that the COMELEC committed a clear violation of law
and jurisprudence, as well as a reckless disregard of its own bidding rules and
procedure. In addition, the COMELEC entered into the contract with inexplicable haste,
and without adequately checking and observing mandatory financial, technical, and
legal requirements. In a subsequent Resolution, We summarized the COMELEC's grave
abuse of discretion as having consisted of the following:7
2. Comelec accepted and irregularly paid for MPEI's ACMs that had failed the
accuracy requirement of 99.9995 percent set up by the Comelec bidding rules.
Acknowledging that this rating could have been too steep, the Court nonetheless
noted that "the essence of public bidding is violated by the practice of requiring
very high standards or unrealistic specifications that cannot be met, x x x only to
water them down after the award is made. Such scheme, which discourages
the entry of bona fide bidders, is in fact a sure indication of fraud in the
bidding, designed to eliminate fair competition."
4. Neither were the ACMs able to print audit trails without loss of data - a
mandatory requirement under Section 7 of Republic Act No. 8436. Audit trails
would enable the Comelec to document the identities of the ACM operators
responsible for data entry and downloading, as well as the times when the
various data were processed, in order to forestall fraud and to identify the
perpetrators. The absence of audit trails would have posed a serious threat to
free and credible elections.
5. Comelec failed to explain satisfactorily why it had ignored its own bidding rules
and requirements. It admitted that the software program used to test the ACMs
was merely a "demo" version, and that the final one to be actually used in the
elections was still being developed. By awarding the Contract and irregularly
paying for the supply of the ACMs without having seen — much less, evaluated
— the final product being purchased, Comelec desecrated the law on public
bidding. It would have allowed the winner to alter its bid substantially, without
any public bidding.
All in all, Comelec subverted the essence of public bidding: to give the public an
opportunity for fair competition and a clear basis for a precise comparison of
bids.8(Emphasis supplied)
As a consequence of the nullification of the automation contract, We directed the Office
of the Ombudsman to determine the possible criminal liability of persons responsible for
the contract.9 This Court likewise directed the Office of the Solicitor General to protect
the government from the ill effects of the illegal disbursement of public funds in relation
to the automation contract.10 chanrobles law
After the declaration of nullity of the automation contract, the following incidents
transpired:ChanRoblesVirt ualawli bra ry
1. Private respondents in the 2004 case moved for reconsideration of the 2004
Decision, but the motion was denied by this Court in a Resolution dated 17
February 2004 (2004 Resolution).11 chanrobleslaw
2. The COMELEC filed a "Most Respectful Motion for Leave to Use the Automated
Counting Machines in the Custody of the Commission on Elections for use in the
8 August 2005 Elections in the Autonomous Region for Muslim Mindanao" dated
9 December 2004 (Motion for Leave to Use ACMs), which was denied by this
Court in its Resolution dated 15 June 2005 (2005 Resolution).
4. Respondent MPEI filed a Complaint for Damages12 (Complaint) with the RTC
Makati, from which the instant case arose.
BACKGROUND PROCEEDINGS
Private respondents in the 2004 case moved for reconsideration of the 2004 Decision.
Aside from reiterating the procedural and substantive arguments they had raised, they
also argued that the 2004 Decision had exposed them to possible criminal
prosecution.13chanrob leslaw
This Court denied the motion in its 2004 Resolution and ruled that no prejudgment had
been made on private respondents' criminal liability. We further ruled that although the
2004 Decision stated that the Ombudsman shall "determine the criminal liability, if any,
of the public officials (and conspiring private individuals, if any) involved in the subject
Resolution and Contract," We did not make any premature conclusion on any
wrongdoing, but precisely directed the Ombudsman to make that determination after
conducting appropriate proceedings and observing due process.
Similarly, it appears from the record that several criminal and administrative
Complaints had indeed been filed with the Ombudsman in relation to the declaration of
nullity of the automation contract.14 The Complaints were filed against several public
officials and the individual respondents in this case.15 chanrob leslaw
With this development, a Petition for Certiorari was filed with this Court on 13 October
2006 and docketed as G.R. No. 174777.20 In the Petition, several individuals21 assailed
the September Resolution of the Ombudsman finding no probable cause to hold
respondents criminally liable. The case remains pending with this Court as of this date.
This Court denied the Motion in Our 2005 Resolution. We ruled that allowing the use of
the ACMs would have the effect of illegally reversing and subverting a final decision We
had promulgated. We further ruled that the COMELEC was asking for permission to do
what it had precisely been prohibited from doing under the 2004 Decision. This Court
also ruled that the grant of the motion would bar or jeopardize the recovery of
government funds paid to respondents. Considering that the COMELEC did not present
any evidence to prove that the defects had been addressed, We held that the use of the
ACMs and the software would expose the ARMM elections to the same electoral ills
pointed out in the 2004 Decision.
Atty. Romulo Macalintal sought to reopen the 2004 case in order that he may be
allowed to intervene as a taxpayer and citizen. His purpose for intervening was to seek
another testing of the ACMs with the ultimate objective of allowing the COMELEC to use
them, this time for the 2007 national elections.
This Court denied his motion in Our 2006 Resolution, ruling that Atty. Macalintal failed
to demonstrate that certain supervening events and legal circumstances had transpired
to justify the reliefs sought. We in fact found that, after Our determination that the
ACMs had failed to pass legally mandated technical requirements in 2004, they were
simply put in storage. The ACMs had remained idle and unused since the last
evaluation, at which they failed to hurdle crucial tests. Consequently, We ruled that if
the ACMs were not good enough for the 2004 national elections or the 2005 ARMM
elections, then neither would they be good enough for the 2007 national elections,
considering that nothing was done to correct the flaws that had been previously
underscored in the 2004 Decision. We held that granting the motion would be
tantamount to rendering the 2004 Decision totally ineffective and nugatory.
Moreover, because of our categorical ruling that the whole bidding process was void
and fraudulent, the proposal to use the illegally procured, demonstratively defective,
and fraud-prone ACMs was rendered nonsensical. Thus: ChanRoblesVirtualawl ibra ry
We stress once again that the Contract entered into by the Comelec for the supply of
the ACMs was declared VOID by the Court in its Decision, because of clear violations of
law and jurisprudence, as well as the reckless disregard by the Commission of its own
bidding rules and procedure. In addition, the poll body entered into the Contract with
inexplicable haste, without adequately checking and observing mandatory financial,
technical and legal requirements. As explained in our Decision, Comelec's gravely
abusive acts consisted of the following:
To muddle the issue, Comelec keeps on saying that the "winning" bidder
presented a lower price than the only other bidder. It ignored the fact that the
whole bidding process was VOID and FRAUDULENT. How then could there
have been a "winning" bid?22 (Emphasis supplied)
THE INSTANT CASE
Complaint for Damages filed by respondents with the RTC Makati and
petitioner's Answer with Counterclaim, with an application for a writ of
preliminary attachment, from which the instant case arose
Upon the finality of the declaration of nullity of the automation contract, respondent
MPEI filed a Complaint for Damages before the RTC Makati, arguing that,
notwithstanding the nullification of the automation contract, the COMELEC was still
bound to pay the amount of P200,165,681.89. This amount represented the difference
between the value of the ACMs and the support services delivered on one hand, and on
the other, the payment previously made by the COMELEC.23 chanroble slaw
Petitioner filed its Answer with Counterclaim24 and argued that respondent MPEI could
no longer recover the unpaid balance from the void automation contract, since the
payments made were illegal disbursements of public funds. It contended that a null and
void contract vests no rights and creates no obligations, and thus produces no legal
effect at all. Petitioner further posited that respondent MPEI could not hinge its claim
upon the principles of unjust enrichment and quasi-contract, because such presume
that the acts by which the authors thereof become obligated to each other are lawful,
which was not the case herein.25 cralawredc hanrobles law
Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner prayed for the
issuance of a writ of preliminary attachment against the properties of MPEI and
individual respondents. The application was grounded upon the fraudulent
misrepresentation of respondents as to their eligibility to participate in the bidding for
the COMELEC automation project and the failure of the ACMs to comply with mandatory
technical requirements.28chanrobles law
Subsequently, the trial court denied the prayer for the issuance of a writ of preliminary
attachment,29 ruling that there was an absence of factual allegations as to how the
fraud was actually committed.
The allegations of petitioner were found to be unreliable, as the latter merely copied
from the declarations of the Supreme Court in Information Technology Foundation of
the Phils, v. COMELEC the factual allegations of MPEI's lack of qualification and
noncompliance with bidding requirements. The trial court further ruled that the
allegations of fraud on the part of MPEI were not supported by the COMELEC, the office
in charge of conducting the bidding for the election automation contract. It was likewise
held that there was no evidence that respondents harbored a preconceived plan not to
comply with the obligation; neither was there any evidence that MPEI's corporate fiction
was used to perpetrate fraud. Thus, it found no sufficient basis to pierce the veil of
corporate fiction or to cause the attachment of the properties owned by individual
respondents.
Petitioner moved to set aside the trial court's Order denying the writ of
attachment,30 but its motion was denied.31 chanrobles law
Aggrieved, petitioner filed an appeal with the CA, arguing that the trial court had acted
with grave abuse of discretion in denying the application for a writ of attachment.
As mentioned earlier, the CA in its First Decision32 reversed and set aside the trial
court's Orders and ruled that there was sufficient basis for the issuance of a writ of
attachment in favor of petitioner.
The appellate court explained that the averments of petitioner in support of the latter's
application actually reflected pertinent conclusions reached by this Court in its 2004
Decision. It held that the trial court erred in disregarding the following findings of fact,
which remained unaltered and unreversed: (1) COMELEC bidding rules provided that
the eligibility and capacity of a bidder may be proved through financial documents
including, among others, audited financial statements for the last three years; (2) MPEI
was incorporated only on 27 February 2003, or 11 days prior to the bidding itself; (3) in
an attempt to disguise its ineligibility, MPEI participated in the bidding as lead company
of MPC, a putative consortium, and submitted the incorporation papers and financial
statements of the members of the consortium; and (4) no proof of the joint venture
agreement, consortium agreement, memorandum of agreement, or business plan
executed among the members of the purported consortium was ever submitted to the
COMELEC.33 chanroble slaw
According to the CA, the foregoing were glaring indicia or badges of fraud, which
entitled petitioner to the issuance of the writ. It further ruled that there was sufficient
reason to pierce the corporate veil of MPEI. Thus, the CA allowed the attachment of the
properties belonging to both MPEI and individual respondents.34 The CA likewise ruled
that even if the COMELEC committed grave abuse of discretion in capriciously
disregarding the rules on public bidding, this should not preclude or deter petitioner
from pursuing its claim against respondents. After all, the State is not estopped by the
mistake of its officers and employees.35 chanrobleslaw
Upon review, the CA reconsidered its First Decision37 and directed the remand of the
case to the RTC Makati for the reception of evidence of allegations of fraud and to
determine whether attachment should necessarily issue.38 chanrobleslaw
The CA explained in its Amended Decision that respondents could not be considered to
have fostered a fraudulent intent to dishonor their obligation, since they had delivered
1,991 units of ACMs.39 It directed petitioner to present proof of respondents' intent to
defraud COMELEC during the execution of the automation contract.40 The CA likewise
emphasized that the Joint Affidavit submitted in support of petitioner's application for
the writ contained allegations that needed to be substantiated.41 It added that proof
must likewise be adduced to verify the requisite fraud that would justify the piercing of
the corporate veil of respondent MPEI.42 chanrob leslaw
The CA further clarified that the 2004 Decision did not make a definite finding as to the
identities of the persons responsible for the illegal disbursement or of those who
participated in the fraudulent dealings.43 It instructed the trial court to consider, in its
determination of whether the writ of attachment should issue, the illegal, imprudent
and hasty acts in awarding the automation contract by the COMELEC. In particular,
these acts consisted of: (1) awarding the automation contract to MPC, an entity that did
not participate in the bidding; and (2) signing the actual automation contract with
respondent MPEI, the company that joined the bidding without meeting the eligibility
requirement.44 chanrobles law
Consequently, petitioner filed the instant Rule 45 Petition,45 arguing that the CA erred
in ordering the remand of the case to the trial court for the reception of evidence to
determine the presence of fraud. Petitioner contends that this Court's 2004 Decision
was sufficient proof of the fraud committed by respondents in the execution of the
voided automation contract.46Respondents allegedly committed fraud by securing the
automation contract, although MPEI was not qualified to bid in the first place.47 Their
claim that the members of MPC bound themselves to the automation contract was an
indication of bad faith as the contract was executed by MPEI alone.48 Neither could they
deny that the software submitted during the bidding process was not the same one that
would be used on election day.49 They could not dissociate themselves from telltale
signs such as purportedly supplying software that later turned out to be non-
existent.50
chanrobles law
In their respective Comments, respondents Willy Yu, Bonnie Yu, Enrique Tansipek, and
Rosita Tansipek counter51 that this Court never ruled that individual respondents were
guilty of any fraud or bad faith in connection with the automation contract, and that it
was incumbent upon petitioner to present evidence on the allegations of fraud to justify
the issuance of the writ.52They likewise argue that the 2004 Decision cannot be invoked
against them, since petitioner and MPEI were co-respondents in the 2004 case and not
adverse parties therein.53Respondents further contend that the allegations of fraud are
belied by their actual delivery of 1,991 units of ACMs to the COMELEC, which they claim
is proof that they never had any intention to evade performance.54 chanrobleslaw
They further allege that this Court, in its 2004 Decision, even recognized that it had not
found any wrongdoing on their part, and that the Ombudsman had already made a
determination that no probable cause existed with respect to charges of violation of
Anti-Graft and Corrupt Practices Act.55 chanroble slaw
Echoing the other respondents' arguments on the lack of particularity in the allegations
of fraud,56 respondents MPEI, Johnson Wong, Bernard Fong, Pedro Tan, and Lauriano
Barrios likewise argue that they were not parties to the 2004 case; thus, the 2004
Decision thereon is not binding on them.57 Individual respondents likewise argue that
the findings of fact in the 2004 Decision were not conclusive,58 considering that eight
(8) of the fifteen (15) justices allegedly refused to go along with the factual findings as
stated in the majority opinion.59Thereafter, petitioner filed its Reply to the
Comments.60 chanrobles law
Based on the submissions of both parties, the following issues are presented to this
Court for resolution:
1. Fraud on the part of respondent MPEI was sufficiently established by the factual
findings of this Court in its 2004 Decision and subsequent pronouncements.
2. A writ of preliminary attachment may issue over the properties of the individual
respondents using the doctrine of piercing the corporate veil.
3. The factual findings of this Court that have become final cannot be modified or
altered, much less reversed, and are controlling in the instant case.
4. The delivery of 1,991 units of ACMs does not negate fraud on the part of
respondents MPEI and Willy.
5. Estoppel does not lie against the state when it acts to rectify mistakes, errors or
illegal acts of its officials and agents.
6. The findings of the Ombudsman are not controlling in the instant case.
DISCUSSION
I.
Fraud on the part of respondent MPEI was sufficiently established by the
factual findings of this Court in the latter's 2004 Decision and subsequent
pronouncements.
Petitioner argues that the findings of this Court in the 2004 Decision serve as sufficient
basis to prove that, at the time of the execution of the automation contract, there was
fraud on the part of respondents that justified the issuance of a writ of attachment.
Respondents, however, argue the contrary. They claim that fraud had not been
sufficiently established by petitioner.
We rule in favor of petitioner. Fraud on the part of respondents MPEI and Willy, as well
as of the other individual respondents — Bonnie, Enrique, Rosita, Pedro, Johnson,
Bernard, and Lauriano — has been established.
A writ of preliminary attachment is a provisional remedy issued upon the order of the
court where an action is pending. Through the writ, the property or properties of the
defendant may be levied upon and held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured by the attaching creditor against
the defendant.61 The provisional remedy of attachment is available in order that the
defendant may not dispose of the property attached, and thus prevent the satisfaction
of any judgment that may be secured by the plaintiff from the former.62 chanroble slaw
Petitioner relied upon Section 1(d), Rule 57 of the Rules of Court as basis for its
application for a writ of preliminary attachment. This provision states: ChanRoblesVi rtua lawlib rary
Section 1. Grounds upon which attachment may issue. At the commencement of the
action or at any time before entry of judgment, a plaintiff or any proper party may have
the property of the adverse party attached as security for the satisfaction of any
judgment that may be recovered in the following cases:
chanRoble svirtual Lawlib ra ry
xxxx
(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
theperformance thereof. (Emphasis supplied)
For a writ of preliminary attachment to issue under the above-quoted rule, the applicant
must sufficiently show the factual circumstances of the alleged fraud.65 In Metro, Inc. v.
Lara's Gift and Decors, Inc.,66 We explained: ChanRoblesVirtua lawlib rary
Fraud is a generic term that is used in various senses and assumes so many different
degrees and forms that courts are compelled to content themselves with comparatively
few general rules for its discovery and defeat. For the same reason, the facts and
circumstances peculiar to each case are allowed to bear heavily on the conscience and
judgment of the court or jury in determining the presence or absence of fraud. In fact,
the fertility of man's invention in devising new schemes of fraud is so great that courts
have always declined to define it, thus, reserving for themselves the liberty to deal with
it in whatever form it may present itself.68 chanrob leslaw
While fraud cannot be presumed, it need not be proved by direct evidence and can well
be inferred from attendant circumstances.72 Fraud by its nature is not a thing
susceptible of ocular observation or readily demonstrable physically; it must of
necessity be proved in many cases by inferences from circumstances shown to have
been involved in the transaction in question.73 chan robles law
In the case at bar, petitioner has sufficiently discharged the burden of demonstrating
the commission of fraud by respondent MPEI in the execution of the automation
contract in the two ways that were enumerated earlier and discussed below:
To avoid any confusion relevant to the basis of fraud, We quote herein the pertinent
portions of this Court's 2004 Decision with regard to the identity, existence, and
eligibility of MPC as bidder:74
On the question of the identity and the existence of the real bidder, respondents insist
that, contrary to petitioners' allegations, the bidder was not Mega Pacific eSolutions,
Inc. (MPEI), which was incorporated only on February 27, 2003, or 11 days
prior to the bidding itself. Rather, the bidder was Mega Pacific Consortium (MPC), of
which MPEI was but a part. As proof thereof, they point to the March 7, 2003 letter of
intent to bid, signed by the president of MPEI allegedly for and on behalf of MPC. They
also call attention to the official receipt issued to MPC, acknowledging payment for the
bidding documents, as proof that it was the "consortium" that participated in the
bidding process.
We do not agree. The March 7, 2003 letter, signed by only one signatory — "Willy U.
Yu, President, Mega Pacific eSolutions, Inc., (Lead Company/Proponent) For: Mega
Pacific Consortium" — and without any further proof, does not by itself prove the
existence of the consortium. It does not show that MPEI or its president have been duly
pre-authorized by the other members of the putative consortium to represent them, to
bid on their collective behalf and, more important, to commit them jointly and severally
to the bid undertakings. The letter is purely self-serving and uncorroborated.
Neither does an official receipt issued to MPC, acknowledging payment for the bidding
documents, constitute proof that it was the purported consortium that participated in
the bidding. Such receipts are issued by cashiers without any legally sufficient inquiry
as to the real identity or existence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility and qualification) of
the putative consortium, Comelec's BAC should have examined the bidding documents
submitted on behalf of MPC. They would have easily discovered the following fatal
flaws.
xxxx
In the instant case, no such instrument was submitted to Comelec during the
bidding process. x x x
xxxx
The only logical conclusion is that no such agreement was ever submitted to
the Comelec for its consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract, there was no
documentary or other basis for Comelec to conclude that a consortium had
actually been formed amongst MPEI, SK C&C and WeSolv, along with
Election.com and ePLDT. Neither was there anything to indicate the exact
relationships between and among these firms; their diverse roles, undertakings and
prestations, if any, relative to the prosecution of the project, the extent of their
respective investments (if any) in the supposed consortium or in the project; and the
precise nature and extent of their respective liabilities with respect to the contract being
offered for bidding. And apart from the self-serving letter of March 7, 2003, there was
not even any indication that MPEI was the lead company duly authorized to act on
behalf of the others.
xxxx
Hence, had the proponent MPEI been evaluated based solely on its own
experience, financial and operational track record or lack thereof, it would
surely not have qualified and would have been immediately considered
ineligible to bid, as respondents readily admit.
xxxx
At this juncture, one might ask: What, then, if there are four MOAs instead of one or
none at all? Isn't it enough that there are these corporations coming together to carry
out the automation project? Isn't it true, as respondent aver, that nowhere in the RFP
issued by Comelec is it required that the members of the joint venture execute a single
written agreement to prove the existence of a joint venture. x x x
xxxx
The problem is not that there are four agreements instead of only one. The problem is
that Comelec never bothered to check. It never based its decision on documents or
other proof that would concretely establish the existence of the claimed consortium or
joint venture or agglomeration.
xxxx
xxxx
Instead of one multilateral agreement executed by, and effective and binding on, all the
five "consortium members" — as earlier claimed by Commissioner Tuason in open court
— it turns out that what was actually executed were four (4) separate and distinct
bilateral Agreements. Obviously, Comelec was furnished copies of these
Agreements only after the bidding process had been terminated, as these were
not included in the Eligibility Documents. x x x
xxxx
At this point, it must be stressed most vigorously that the submission of the
four bilateral Agreements to Comelec after the end of the bidding process did
nothing to eliminate the grave abuse of discretion it had already committed on
April 15, 2003.
In any event, it is also claimed that the automation Contract awarded by Comelec
incorporates all documents executed by the "consortium" members, even if these
documents are not referred to therein. x x x
xxxx
Thus, it is argued that whatever perceived deficiencies there were in the supplementary
contracts - those entered into by MPEI and the other members of the "consortium" as
regards their joint and several undertakings — have been cured. Better still, such
deficiencies have supposedly been prevented from arising as a result of the above-
quoted provisions, from which it can be immediately established that each of the
members of MPC assumes the same joint and several liability as the other members.
The foregoing argument is unpersuasive. First, the contract being referred to,
entitled "The Automated Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged consortium, MPC. To repeat, it
is MPEI - not MPC - that is a party to the Contract. Nowhere in that Contract is
there any mention of a consortium or joint venture, of members thereof, much
less of joint and several liability. Supposedly executed sometime in May 2003,
the Contract bears a notarization date of June 30, 2003, and contains the
signature of Willy U. Yu signing as president of MPEI (not for and on behalf of
MPC), along with that of the Comelec chair. It provides in Section 3.2 that
MPEI (not MPC) is to supply the Equipment and perform the Services under
the Contract, in accordance with the appendices thereof; nothing whatsoever
is said about any consortium or joint venture or partnership.
xxxx
Eligibility of a Consortium Based on the Collective Qualifications of Its Members
Respondents declare that, for purposes of assessing the eligibility of the bidder, the
members of MPC should be evaluated on a collective basis. Therefore, they contend,
the failure of MPEI to submit financial statements (on account of its recent
incorporation) should not by itself disqualify MPC, since the other members of
the "consortium" could meet the criteria set out in the RFP.
xxxx
Unfortunately, this argument seems to assume that the "collective" nature of the
undertaking of the members of MPC, their contribution of assets and sharing of risks,
and the "community" of their interest in the performance of the Contract entitle MPC to
be treated as a joint venture or consortium; and to be evaluated accordingly on the
basis of the members' collective qualifications when, in fact, the evidence before the
Court suggest otherwise.
xxxx
Going back to the instant case, it should be recalled that the automation
Contract with Comelec was not executed by the "consortium" MPC - or by
MPEI for and on behalf of MPC - but by MPEI, period. The said Contract
contains no mention whatsoever of any consortium or members thereof. This
fact alone seems to contradict all the suppositions about a joint undertaking
that would normally apply to a joint venture or consortium: that it is a
commercial enterprise involving a community of interest, a sharing of risks,
profits and losses, and so on.
xxxx
To the Court, this strange and beguiling arrangement of MPEI with the other companies
does not qualify them to be treated as a consortium or joint venture, at least of the
type that government agencies like the Comelec should be dealing with. With more
reason is it unable to agree to the proposal to evaluate the members of MPC on a
collective basis. (Emphases supplied)
These findings found their way into petitioner's application for a writ of preliminary
attachment,75 in which it claimed the following as bases for fraud: (1) respondents
committed fraud by securing the election automation contract and, in order to
perpetrate the fraud, by misrepresenting the actual bidder as MPC and MPEI as merely
acting on MPC's behalf; (2) while knowing that MPEI was not qualified to bid for the
automation contract, respondents still signed and executed the contract; and (3)
respondents acted in bad faith when they claimed that they had bound themselves to
the automation contract, because it was not executed by MPC—or by MPEI on MPC's
behalf—but by MPEI alone.76 chanrob leslaw
We agree with petitioner that respondent MPEI committed fraud by securing the
election automation contract; and, in order to perpetrate the fraud, by misrepresenting
that the actual bidder was MPC and not MPEI, which was only acting on behalf of MPC.
We likewise rule that respondent MPEI has defrauded petitioner, since the former still
executed the automation contract despite knowing that it was not qualified to bid for
the same.
The established facts surrounding the eligibility, qualification and existence of MPC —
and of MPEI for that matter — and the subsequent execution of the automation contract
with the latter, when all taken together, constitute badges of fraud that We simply
cannot ignore. MPC was considered an illegitimate entity, because its existence as a
joint venture had not been established. Notably, the essential document/s that would
have shown its eligibility as a joint venture/consortium were not presented to the
COMELEC at the most opportune time, that is, during the qualification stage of the
bidding process. The concealment by respondent MPEI of the essential documents
showing its eligibility to bid as part a joint venture is too obvious to be missed. How
could it not have known that the very document showing MPC as a joint venture should
have been included in their eligibility envelope?
Likewise notable is the fact that these supposed agreements, allegedly among the
supposed consortium members, were belatedly provided to the COMELEC after the
bidding process had been terminated; these were not included in the Eligibility
Documents earlier submitted by MPC. Similarly, as found by this Court, these
documents did not prove any joint venture agreement among the parties in the first
place, but were actually individual agreements executed by each member of the
supposed consortium with respondent MPEI.
More startling to the dispassionate mind is the incongruence between the supposed
actual bidder MPC, on one hand, and, on the other, respondent MPEI, which executed
the automation contract. Significantly, respondent MPEI was not even eligible and
qualified to bid in the first place; and yet, the automation contract itself was executed
and signed singly by respondent MPEI, not on behalf of the purported bidder MPC,
without any mention whatsoever of the members of the supposed consortium.
From these established facts, We can surmise that in order to secure the automation
contract, respondent MPEI perpetrated a scheme against petitioner by using MPC as
supposed bidder and eventually succeeding in signing the automation contract as MPEI
alone. Worse, it was respondent MPEI alone, an entity that was ineligible to bid in the
first place, that eventually executed the automation contract.
To a reasonable mind, the entire situation reeks of fraud, what with the
misrepresentation of identity and misrepresentation as to creditworthiness. It is in
these kinds of fraudulent instances, when the ability to abscond is greatest, to which a
writ of attachment is precisely responsive.
Further, the failure to attach the eligibility documents is tantamount to failure on the
part of respondent MPEI to disclose material facts. That omission constitutes fraud.
Pursuant to Article 1339 of the Civil Code,77 silence or concealment does not, by itself,
constitute fraud, unless there is a special duty to disclose certain facts, or unless the
communication should be made according to good faith and the usages of
commerce.78 chanrobles law
One form of inducement is covered within the scope of the crime of estafa under Article
315, paragraph 2, of the Revised Penal Code, in which, any person who defrauds
another by using fictitious name, or falsely pretends to possess power, influence,
qualifications, property, credit, agency, business or imaginary transactions, or by
means of similar deceits executed prior to or simultaneously with the commission of
fraud is held criminally liable. In Joson v. People,80 this Court explained the element of
defraudation by means of deceit, by giving a definition of fraud and deceit, in this
wise:ChanRoblesVi rtualaw lib rary
In the case of People v. Menil, Jr., the Court has defined fraud and deceit in this
wise:ChanRoblesVi rtualaw lib rary
In Raser v. Moomaw,84 it was ruled that the essential elements necessary to constitute
actionable fraud and deceit were present in the complaint. It was alleged that, to induce
plaintiff to procure a loan, defendant introduced him to a woman who was falsely
represented to be Annie L. Knowles of Seattle, Washington, the owner of the property,
and that plaintiff had no means of ascertaining her true identity. On the other hand,
defendant knew, or in the exercise of reasonable caution should have known, that she
was an impostor, and that plaintiff relied on the representations, induced his client to
make the loan, and had since been compelled to repay it. In the same case, the Court
ruled that false representations as to the identity of a person are actionable, if made to
induce another to act thereon, and such other does so act thereon to his prejudice.85 chanroble slaw
In this case, analogous to the fraud and deceit exhibited in the above-mentioned
circumstances, respondent MPEI had no excuse not to be forthright with the documents
showing MPC's eligibility to bid as a joint venture. The Invitation to Bid, as quoted in
our 2004 Decision, could not have been any clearer when it stated that only bids from
qualified entities, such as a joint venture, would be entertained: ChanRoblesVi rtualawl ib rary
The Commission on Elections (COMELEC), pursuant to the mandate of Republic Act Nos.
8189 and 8436, invites interested offerers, vendors, suppliers or lessors to apply for
eligibility and to bid for the procurement by purchase, lease, lease with option to
purchase, or otherwise, supplies, equipment, materials and services needed for a
comprehensive Automated Election System, consisting of three (3) phases: (a)
registration/verification of voters, (b) automated counting and consolidation of votes,
and (c) electronic transmission of election results, with an approved budget of TWO
BILLION FIVE HUNDRED MILLION (Php2,500,000,000) Pesos.
xxxx
As found by this Court in its 2004 Decision, it appears that the documents that were
submitted after the bidding, which respondents claimed would prove the existence of
the relationship among the members of the consortium, were actually separate
agreements individually executed by the supposed members with MPEI. We had ruled
that these documents were highly irregular, considering that each of the four different
and separate bilateral Agreements was valid and binding only between MPEI and the
other contracting party, leaving the other "consortium" members total strangers
thereto. Consequently, the other consortium members had nothing to do with one
another, as each one dealt only with MPEI.88 chanrobles law
Considering that they merely showed MPEI's individual agreements with the other
supposed members, these agreements confirm to our mind the fraudulent intent on the
part of respondent MPEI to deceive the relevant officials about MPC. The intent was to
cure the deficiency of the winning bid, which intent miserably failed. Said this Court:89
We are unconvinced, PBAC was guided by the rules, regulations or guidelines existing
before the bid proposals were opened on November 10, 1989. The basic rule in
public bidding is that bids should be evaluated based on the required
documents submitted before and not after the opening of bids. Otherwise, the
foundation of a fair and competitive public bidding would be defeated. Strict
observance of the rules, regulations, and guidelines of the bidding process is
the only safeguard to a fair, honest and competitive public bidding.
In underscoring the Court's strict application of the pertinent rules, regulations and
guidelines of the public bidding process, We have ruled in C & C Commercial vs.
Menor (L-28360, January 27, 1983, 120 SCRA 112), that Nawasa properly rejected a
bid of C & C Commercial to supply asbestos cement pressure which bid did not include
a tax clearance certificate as required by Administrative Order No. 66 dated June 26,
1967. In Caltex (Phil.) Inc., et. al. vs. Delgado Brothers, Inc. et. al., (96 Phil. 368,
375), We stressed that public biddings are held for the protection of the public and the
public should be given the best possible advantages by means of open competition
among the bidders.
xxxx
B. Fraud on the part of respondent MPEI was further shown by the fact that
despite the failure of its ACMs to pass the tests conducted by the DOST,
respondent still acceded to being awarded the automation contract.
Another token of fraud is established by Our findings in relation to the failure of the
ACMs to pass the tests of the DOST. We quote herein the pertinent portions of this
Court's 2004 Decision in relation thereto: ChanRoblesVirtualawl ibra ry
After respondent "consortium" and the other bidder, TIM, had submitted their
respective bids on March 10, 2003, the Comelec's BAC — through its Technical Working
Group (TWG) and the DOST — evaluated their technical proposals.
xxxx
According to respondents, it was only after the TWG and the DOST had conducted their
separate tests and submitted their respective reports that the BAC, on the basis of
these reports formulated its comments/recommendations on the bids of the consortium
and TIM.
The BAG, in its Report dated April 21, 2003, recommended that the Phase II project
involving the acquisition of automated counting machines be awarded to MPEI. x x x
xxxx
The BAC, however, also stated on page 4 of its Report: "Based on the 14 April
2003 report (Table 6) of the DOST, it appears that both Mega-Pacific and TIM
(Total Information Management Corporation) failed to meet some of the
requirements. x x x
xxxx
The first of the key requirements was that the counting machines were to have an
accuracy rating of at least 99.9995 percent. The BAC Report indicates that both
Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be part and parcel of the
Comelec's Request for Proposal (RFP). x x x
xxxx
At this point, the Court stresses that the essence of public bidding is violated
by the practice of requiring very high standards or unrealistic specifications
that cannot be met — like the 99.9995 percent accuracy rating in this case —
only to water them down after the bid has been award.[sic] Such scheme,
which discourages the entry of prospective bona fide bidders, is in fact a sure
indication of fraud in the bidding, designed to eliminate fair competition.
Certainly, if no bidder meets the mandatory requirements, standards or
specifications, then no award should be made and a failed bidding declared.
xxxx
Failure of Software to Detect Previously Downloaded Data
Once again, though, Comelec chose to ignore this crucial deficiency, which should have
been a cause for the gravest concern. x x x.
xxxx
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate that the
ACMs of both bidders were unable to print the audit trail without any loss of data. In
the case of MPC, the audit trail system was "not yet incorporated" into its ACMs.
xxxx
Thus, the RFP on page 27 states that the ballot counting machines and ballot counting
software must print an audit trail of all machine operations for documentation
and verification purposes. Furthermore, the audit trail must be stored on the internal
storage device and be available on demand for future printing and verifying. On pages
30-31, the RFP also requires that the city/municipal canvassing system software be
able to print an audit trail of the canvassing operations, including therein such
data as the date and time the canvassing program was started, the log-in of the
authorized users (the identity of the machine operators), the date and time the canvass
data were downloaded into the canvassing system, and so on and so forth. On page 33
of the RFP, we find the same audit trail requirement with respect to
the provincial/district canvassing system software; and again on pages 35-36 thereof,
the same audit trail requirement with respect to the national canvassing
system software.
xxxx
The said provision which respondents have quoted several times, provides that ACMs
are to possess certain features divided into two classes: those that the statute itself
considers mandatory and other features or capabilities that the law deems
optional. Among those considered mandatory are "provisions for audit trails"! x
x x.
In brief, respondents cannot deny that the provision requiring audit trails is
indeed mandatory, considering the wording of Section 7 of RA 8436. Neither
can Respondent Comelec deny that it has relied on the BAC Report, which indicates that
the machines or the software was deficient in that respect. And yet, the Commission
simply disregarded this shortcoming and awarded the Contract to private respondent,
thereby violating the very law it was supposed to implement.90 (Emphases supplied)
The above-mentioned findings were further echoed by this Court in its 2006 Resolution
with a categorical conclusion that the bidding process was void and fraudulent.91 chanrobles law
Again, these factual findings found their way into the application of petitioner for a writ
of preliminary attachment,92 as it claimed that respondents could not dissociate
themselves from their telltale acts of supplying defective machines and nonexistent
software.93 The latter offered no defense in relation to these claims.
We see no reason to deviate from our finding of fraud on the part of respondent MPEI in
the 2004 Decision and 2006 Resolution. Despite its failure to meet the mandatory
requirements set forth in the bidding procedure, respondent still acceded to being
awarded the contract. These circumstances reveal its ploy to gain undue advantage
over the other bidders in general, even to the extent of cheating the government.
The word "bidding" in its comprehensive sense means making an offer or an invitation
to prospective contractors, whereby the government manifests its intention to make
proposals for the purpose of securing supplies, materials, and equipment for official
business or public use, or for public works or repair.94 Three principles involved in public
bidding are as follows: (1) the offer to the public; (2) an opportunity for competition,
and (3) a basis for an exact comparison of bids. A regulation of the matter, which
excludes any of these factors, destroys the distinctive character of the system and
thwarts the purpose of its adoption.95 chanroble slaw
In the instant case, We infer from the circumstances that respondent MPEI welcomed
and allowed the award of the automation contract, as it executed the contract despite
the full knowledge that it had not met the mandatory requirements set forth in the RFP.
Respondent acceded to and benefitted from the watering down of these mandatory
requirements, resulting in undue advantage in its favor. The fact that there were
numerous mandatory requirements that were simply set aside to pave the way for the
award of the automation contract does not escape the attention of this Court.
Respondent MPEI, through respondent Willy, signed and executed the automation
contract with COMELEC. It is therefore preposterous for respondent argue that it was a
"passive participant" in the whole bidding process.
We reject the CA's denial of petitioner's plea for the ancillary remedy of preliminary
attachment, considering that the cumulative effect of the factual findings of this Court
establishes a sufficient basis to conclude that fraud had attended the execution of the
automation contract. Such fraud is deducible from the 2004 Decision and further upheld
in the 2006 Resolution. It was incongruous, therefore, for the CA to have denied the
application for a writ of preliminary attachment, when the evidence on record was the
same that was used to demonstrate the propriety of the issuance of the writ of
preliminary attachment. This was the same evidence that We had already considered
and passed upon, and on which We based Our 2004 Decision to nullify the automation
contract. It would not be right for this Court to ignore these illegal transactions, as to
do so would be tantamount to abandoning its constitutional duty of safeguarding public
interest.
II.
Application of the piercing doctrine justifies the issuance of a writ of
preliminary attachment over the properties of the individual respondents.
Individual respondents argue that since they were not parties to the 2004 case, any
factual findings or conclusions therein should not be binding upon them.96 Since they
were strangers to that case, they are not bound by the judgment rendered by this
Court.97 They claim that their fundamental right to due process would be violated if
their properties were to be attached for a purported corporate debt on the basis of a
court ruling in a case in which they were not given the right or opportunity to be
heard.98chanrobles law
We cannot subscribe to this argument. In the first place, it could not be reasonably
expected that individual respondents would be impleaded in the 2004 case. As admitted
by respondents, the issues resolved in the 2004 Decision were limited to the following:
(1) whether to declare Resolution No. 6074 of the COMELEC null and void; (2) whether
to enjoin the implementation of any further contract that may have been entered into
by COMELEC with MPC or MPEI; and (3) whether to compel COMELEC to conduct a
rebidding of the project. To implead individual respondents then was improper,
considering that the automation contract was entered into by respondent MPEI. This
Court even acknowledged this fact by directing that the liabilities of persons responsible
for the nullity of the contract be determined in another appropriate proceeding and by
directing the OSG to undertake measures to protect the interests of the government.
At any rate, individual respondents have been fully afforded the right to due process by
being impleaded and heard in the subsequent proceedings before the courts a quo.
Finally, they cannot argue violation of due process, as respondent MPEI, of which they
are incorporators/stockholders, remains vulnerable to the piercing of its corporate veil.
A. There are red flags indicating that MPEI was used to perpetrate the fraud
against petitioner, thus allowing the piercing of its corporate veil.
Petitioner seeks the issuance of a writ of preliminary attachment over the personal
assets of the individual respondents, notwithstanding the doctrine of separate juridical
personality.99 It invokes the use of the doctrine of piercing the corporate veil, to which
the canon of separate juridical personality is vulnerable, as a way to reach the personal
properties of the individual respondents. Petitioner paints a picture of a sham
corporation set up by all the individual respondents for the purpose of securing the
automation contract.
Veil-piercing in fraud cases requires that the legal fiction of separate juridical
personality is used for fraudulent or wrongful ends.100 For reasons discussed below, We
see red flags of fraudulent schemes in public procurement, all of which were established
in the 2004 Decision, the totality of which strongly indicate that MPEI was a sham
corporation formed merely for the purpose of perpetrating a fraudulent scheme.
The red flags are as follows: (1) overly narrow specifications; (2) unjustified
recommendations and unjustified winning bidders; (3) failure to meet the terms of the
contract; and (4) shell or fictitious company. We shall discuss each in detail.
The World Bank's Fraud and Corruption Awareness Handbook: A Handbook for Civil
Servants Involved in Public Procurement, (Handbook) identifies an assortment of fraud
and corruption indicators and relevant schemes in public procurement.101 One of the
schemes recognized by the Handbook is rigged specifications: ChanRoblesVi rt ualawlib ra ry
Scheme: Rigged specifications. In a competitive market for goods and services, any
specifications that seem to be drafted in a way that favors a particular company
deserve closer scrutiny. For example, specifications that are too narrow can be
used to exclude other qualified bidders or justify improper sole source awards. Unduly
vague or broad specifications can allow an unqualified bidder to compete or justify
fraudulent change orders after the contract is awarded. Sometimes, project officials will
go so far as to allow the favored bidder to draft the specifications.102 chanroblesvi rtual lawlib rary
In Our 2004 Decision, We identified a red flag of rigged bidding in the form of overly
narrow specifications. As already discussed, the accuracy requirement of 99.9995
percent was set up by COMELEC bidding rules. This Court recognized that this rating
was "too high and was a sure indication of fraud in the bidding, designed to
eliminate fair competition."103Indeed, "the essence of public bidding is violated by
the practice of requiring very high standards or unrealistic specifications that cannot be
met...only to water them down after the bid has been award(ed)."104 chanroble slaw
Questionable evaluation and unusual bid patterns may emerge in the BER.
After the completion of the evaluation process, the Bid Evaluation Committee
should present to the implementing agency its BER, which describes the
results and the process by which the BEC has evaluated the bids received. The
BER may include a number of indicators of bid rigging, e.g., questionable
disqualifications, and unusual bid patterns.105 chanroblesv irt uallawl ibra ry
The Handbook lists unjustified recommendations and unjustified winning bidders as red
flags of a rigged bidding.106 chanrob leslaw
The red flags of questionable recommendation and unjustified awards are raised in this
case. As earlier discussed, the project was awarded to MPC, which proved to be a
nonentity. It was MPEI that actually participated in the bidding process, but it was not
qualified to be a bidder in the first place. Moreover, its ACMs failed the accuracy
requirement set by COMELEC. Yet, MPC — the nonentity — obtained a favorable
recommendation from the BAC, and the automation contract was awarded to the
former.
Failure to meet the terms of a contract is regarded as a fraud by the Handbook: ChanRoblesVi rtua lawlib rary
Scheme: Failure to meet contract terms. Firms may deliberately fail to comply with
contract requirements. The contractor will attempt to conceal such actions often by
falsifying or forging supporting documentation and bill for the work as if it were done in
accordance with specifications. In many cases, the contractors must bribe inspection or
project personnel to accept the substandard goods or works, or supervision agents are
coerced to approve substandard work. x x x107 chan roblesv irtuallawl ib rary
As mentioned earlier, this Court already found the ACMs to be below the standards set
by the COMELEC. We reiterated their noncompliant status in Our 2005 and 2006
Resolutions.
As early as 2005, when the COMELEC sought permission from this Court to utilize the
ACMs in the then scheduled ARMM elections, We declared that the proposed use of the
machines would expose the ARMM elections to the same dangers of massive electoral
fraud that would have been inflicted by the projected automation of the 2004 national
elections. We based this pronouncement on the fact that the COMELEC failed to show
that the deficiencies had been cured.108 Yet again, this Court in 2006 blocked
another attempt to use the ACMs, this time for the 2007 elections. We reiterated that
because the ACMs had merely remained idle and unused since their last evaluation, in
which they failed to hurdle the crucial tests, then their defects and deficiencies could
not have been cured by then.109 chanrobles law
Based on the foregoing, the ACMs delivered were plagued with defects that made them
fail the requirements set for the automation project.
Fictitious companies are by definition fraudulent and may also serve as fronts for
government officials. The typical scheme involves corrupt government officials creating
a fictitious company that will serve as a "vehicle" to secure contract awards. Often, the
fictitious—or ghost— company will subcontract work to lower cost and sometimes
unqualified firms. The fictitious company may also utilize designated losers as
subcontractors to deliver the work, thus indicating collusion.
Shell companies have no significant assets, staff or operational capacity. They pose
a serious red flag as a bidder on public contracts, because they often hide the
interests of project or government officials, concealing a conflict of interest and
opportunities for money laundering. Also, by definition, they have no
experience.110 chanroble svirtuallaw lib rary
MPEI qualifies as a shell or fictitious company. It was nonexistent at the time of the
invitation to bid; to be precise, it was incorporated only 11 days before the bidding. It
was a newly formed corporation and, as such, had no track record to speak of.
Further, MPEI misrepresented itself in the bidding process as "lead company" of the
supposed joint venture. The misrepresentation appears to have been an attempt to
justify its lack of experience. As a new company, it was not eligible to participate as a
bidder. It could do so only by pretending that it was acting as an agent of the putative
consortium.
The timing of the incorporation of MPEI is particularly noteworthy. Its close nexus to the
date of the invitation to bid and the date of the bidding (11 days) provides a strong
indicium of the intent to use the corporate vehicle for fraudulent purposes. This
proximity unmistakably indicates that the automation contract served as motivation for
the formation of MPEI: a corporation had to be organized so it could participate in the
bidding by claiming to be an agent of a pretended joint venture.
The timing of the formation of MPEI did not escape the scrutiny of Justice Angelina
Sandoval-Gutierrez, who made this observation in her Concurring Opinion in the 2004
Decision:ChanRoblesVi rtualawl ib rary
At this juncture, it bears stressing that MPEI was incorporated only on February 27,
2003 as evidenced by its Certificate of Incorporation. This goes to show that from the
time the COMELEC issued its Invitation to Bid (January 28, 2003) and Request for
Proposal (February 17, 2003) up to the time it convened the Pre-bid Conference
(February 18, 2003), MPEI was literally a non-existent entity. It came into being only
on February 27, 2003 or eleven (11) days prior to the submission of its bid, i.e. March
10, 2003. This poses a legal obstacle to its eligibility as a bidder. The Request for
Proposal requires the bidder to submit financial documents that will establish to the
BAC's satisfaction its financial capability which include: ChanRoblesVirtualawl ibra ry
(1) audited financial statements of the Bidder's firm for the last three (3) calendar
years, stamped "RECEIVED" by the appropriate government agency, to show its
capacity to finance the manufacture and supply of Goods called for and a statement or
record of volumes of sales;
To do away with such complication, MPEI asserts that it was MP CONSORTIUM who
submitted the bid on March 10, 2003. It pretends compliance with the requirements by
invoking the financial capabilities and long time existence of the alleged members of the
MP CONSORTIUM, namely, Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It wants
this Court to believe that it is MP CONSORTIUM who was actually dealing with the
COMELEC and that its (MPEI) participation is merely that of a "lead company and
proponent" of the joint venture. This is hardly convincing. For one, the contract for the
supply and delivery of ACM was between COMELEC and MPEI, not MP CONSORTIUM. As
a matter of fad, there cannot be found in the contract any reference to the MP
CONSORTIUM or any member thereof for that matter. For another, the agreements
among the alleged members of MP CONSORTIUM do not show the existence of a joint-
venture agreement. Worse, MPEI cannot produce the agreement as to the "joint and
several liability" of the alleged members of the MP CONSORTIUM as required by this
Court in its Resolution dated October 7, 2003.111 chan roblesv irt uallawl ibra ry
The totality of the red flags found in this case leads Us to the inevitable conclusion that
MPEI was nothing but a sham corporation formed for the purpose of defrauding
petitioner. Its ultimate objective was to secure the P1,248,949,088 automation
contract. The scheme was to put up a corporation that would participate in the bid and
enter into a contract with the COMELEC, even if the former was not qualified or
authorized to do so.
Without the incorporation of MPEI, the defraudation of the government would not have
been possible. The formation of MPEI paved the way for its participation in the bid,
through its claim that it was an agent of a supposed joint venture, its
misrepresentations to secure the automation contract, its misrepresentation at the time
of the execution of the contract, its delivery of the defective ACMs, and ultimately its
acceptance of the benefits under the automation contract.
We shall next consider the question of whose assets shall be reached by the application
of the piercing doctrine.
A corporation's privilege of being treated as an entity distinct and separate from the
stockholders is confined to legitimate uses, and is subject to equitable limitations to
prevent its being exercised for fraudulent, unfair, or illegal purposes.112 As early as the
19th century, it has been held that: ChanRoblesVirtualawl ibra ry
The main effect of disregarding the corporate fiction is that stockholders will be held
personally liable for the acts and contracts of the corporation, whose existence, at least
for the purpose of the particular situation involved, is ignored.114 chanrob leslaw
We have consistently held that when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.115 Thus, considering that We find it justified to
pierce the corporate veil in the case before Us, MPEI must, perforce, be treated as a
mere association of persons whose assets are unshielded by corporate fiction. Such
persons' individual liability shall now be determined with respect to the matter at hand.
Contrary to respondent Willy's claims, his participation in the fraud is clearly established
by his unequivocal agreement to the execution of the automation contract with the
COMELEC, and his signature that appears on the voided contract. As far back as in the
2004 Decision, his participation as a signatory' to the automation contract was already
established: ChanRoblesVirt ualawli bra ry
The foregoing argument is unpersuasive. First, the contract being referred to, entitled
"The Automated Counting and Canvassing Project Contract," is between Comelec and
MPEI, not the alleged consortium, MPC. To repeat, it is MPEI - not MPC - that is a party
to the Contract. Nowhere in that Contract is there any mention of a consortium or joint
venture, of members thereof much less of joint and several liability. Supposedly
executed sometime in May 2003, the Contract bears a notarization date of June 30,
2003, and contains the signature of Willy U. Yu signing as president of MPEI
(not for and on behalf of MPC), along with that of the Comelec chair. It provides
in Section 3.2 that MPEI (not MPC) is to supply the Equipment and perform the Services
under the Contract, in accordance with the appendices thereof; nothing whatsoever is
said about any consortium or joint venture or partnership. x x x (Emphasis supplied)
That his signature appears on the automation contract means that he agreed and
acceded to its terms.116 His participation in the fraud involves his signing and executing
the voided contract.
The execution of the automation contract with a non-eligible entity and the subsequent
award of the contract despite the failure to meet the mandatory requirements were
"badges of fraud" in the procurement process that should have been recognized by the
CA to justify the issuance of the writ of preliminary attachment against the properties of
respondent Willy.
With respect to the other individual respondents, petitioner, in its Answer with
Counterclaim, alleged: ChanRoblesVirt ualawli bra ry
30. Also, inasmuch as MPEI is in truth a mere shell corporation with no real assets in its
name, incorporated merely to feign eligibility for the bidding of the automated contract
when it in fact had none, to the great prejudice of the Republic, plaintiffs individual
incorporators should likewise be made liable together with MPEI for the
automated contract amount paid to and received by the latter. The following
circumstances altogether manifest that the individual incorporators merely cloaked
themselves with the veil of corporate fiction to perpetrate a fraud and to eschew liability
therefor, thus:
f. From the time it was incorporated until today, MPEI has not complied
with the reportorial requirements of the Securities and Exchange
Commission;
x x x x117
chanrob lesvi rtua llawli bra ry
Respondents Johnson's and Bernard's denials were made in paragraphs 2.17 and 3.3 of
their Answer with Counterclaim to the Republic's Counterclaim, to wit:120
2.17 The erroneous conclusion of fact and law in paragraph 30 (f) and (g) of the
Republic's answer is denied, having been pleaded in violation of the requirement, that
only ultimate facts arc to be stated in the pleadings and they are falsehoods. The truth
of the matter is that there could not have been fraud, as these agreements were
submitted to the COMELEC for its evaluation and assessment, as to the qualification of
the Consortium as a bidder, a showing of transparency in plaintiffs dealings with the
Republic.121 chanrobles law
As regards Enrique and Rosita, the relevant paragraphs in the Answer with
Counterclaim to the Republic's Counterclaim123 are quoted below: ChanRoblesVirtualawli bra ry
2.17. The erroneous conclusion of fact and law in paragraph 30 (F) and (G) of the
Republic's answer is denied, having been pleaded in violation of the requirement, that
only ultimate facts are to be stated in the pleadings and they are falsehoods. The truth
of the matter is that there could not have been fraud, as these agreements were
submitted to the COMELEC for its evaluation and assessment, as to the qualification of
the Consortium as a bidder, a showing of transparency in plaintiffs dealings with the
Republic.124 chanrobles law
Pedro and Laureano offer a similar defense in paragraph 3.3 of their Reply and Answer
with Counterclaim to the Republic's Counterclaim126 dated 28 June 2004, which
reads:ChanRoblesVirtualawl ibra ry
3.3. As far as plaintiff MPEI and defendants-in-counterclaim are concerned, they dealt
with the COMELEC with full transparency and in utmost good faith. All
documents support its eligibility to bid for the supply of the ACMs and their peripheral
services, were submitted to the COMELEC for its evaluation in full transparency.
Pertinently, neither plaintiff MPEI nor any of its directors, stockholders, officers or
employees had any participation in the evaluation of the bids and eventual choice of the
winning bidder.127 chanroblesv irtuallaw lib rary
It can be seen from the above-quoted paragraphs that the individual respondents never
denied their participation in the questioned transactions of MPEI, merely raising the
defense of good faith and shifting the blame to the COMELEC. The individual
respondents have, in effect, admitted that they had knowledge of and participation in
the fraudulent subcontracting of the automation contract to the four corporations.
It bears stressing that the remaining individual respondents, together with respondent
Willy, incorporated MPEI. As incorporators, they are expected to be involved in the
management of the corporation and they are charged with the duty of care. This is one
of the reasons for the requirement of ownership of at least one share of stock by an
incorporator: ChanRoblesVirt ualawli bra ry
The reason for this, as explained by the lawmakers, is to avoid the confusion and/or
ambiguities arising in a situation under the old corporation law where there exists one
set of incorporators who are not even shareholders and another set of
directors/incorporators who must all be shareholders of the corporation. The
people who deal with said corporation at such an early stage are confused as to who
are the persons or group really authorized to act in behalf of the corporation.
(Proceedings of the Batasan Pambansa on the Proposed Corporation Code). Another
reason may be anchored on the presumption that when an incorporator has
pecuniary interest in the corporation, no matter how minimal, he will be more
involved in the management of corporate affairs and to a greater degree, be
concerned with the welfare of the corporation.128 chanroblesv irt uallawl ibra ry
It is clear to this Court that inequity would result if We do not attach personal liability to
all the individual respondents. With a definite finding that MPEI was used to perpetrate
the fraud against the government, it would be a great injustice if the remaining
individual respondents would enjoy the benefits of incorporation despite a clear finding
of abuse of the corporate vehicle. Indeed, to allow the corporate fiction to remain intact
would not subserve, but instead subvert, the ends of justice.
III.
The factual findings of this Court that have become final cannot be modified or
altered, much less reversed, and are controlling in the instant case.
Respondents argue that the 2004 Decision did not resolve and could not have resolved
the factual issue of whether they had committed any fraud, as the Supreme Court is
not a trier of facts; and the 2004 case, being a certiorari case, did not deal with
questions of fact.129 chanrobles law
Further, respondents argue that the findings of this Court ought to be confined only to
those issues actually raised and resolved in the 2004 case, in accordance with the
principle of conclusiveness of judgment.130 They explain that the issues resolved in the
2004 Decision were only limited to the following: (1) whether to declare COMELEC
Resolution No. 6074 null and void; (2) whether to enjoin the implementation of any
further contract that may have been entered into by COMELEC with MPC or MPEI; and
(3) whether to compel COMELEC to conduct a rebidding of the project.131 chanrobles law
It is obvious that respondents are merely trying to escape the implications or effects of
the nullity of the automation contract that they had executed. Section 1, Rule 65 of the
Rules of Court, clearly sets forth the instances when a petition for certiorari can be used
as a proper remedy: ChanRoblesVirtualawl ibra ry
Section 1. Petition for certiorari. — When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law. a
person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require.
The term "grave abuse of discretion" has a specific meaning. An act of a court or
tribunal can only be considered to have been committed with grave abuse of discretion
when the act is done in a "capricious or whimsical exercise of judgment as is equivalent
to lack of jurisdiction."132 The abuse of discretion must be so patent and gross as to
amount to an "evasion of a positive duty or to a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of law, as where the power is
exercised in an arbitrary and despotic manner by reason of passion and
hostility."133 Furthermore, the use of a petition for certiorari is restricted only to "truly
extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly
void."134 From the foregoing definition, it is clear that the special civil action of certiorari
under Rule 65 can only strike down an act for having been done with grave abuse of
discretion if the petitioner could manifestly show that such act was patent and
gross.135chanroble slaw
We had to ascertain from the evidence whether the COMELEC committed grave abuse
of discretion, and in the process, were justified in making some factual findings. The
conclusions derived from the factual findings are inextricably intertwined with this
Court's determination of grave abuse of discretion. They have a direct bearing and are
in fact necessary to illustrate that the award of the automation contract was done
hastily and in direct violation of law. This Court has indeed made factual findings based
on the evidence presented before it; in turn, these factual findings constitute the
controlling legal rule between the parties that cannot be modified or amended by any of
them. This Court is bound to consider the factual findings made in the 2004 Decision in
order to declare that there is fraud for the purpose of issuing the writ of preliminary
attachment.
This doctrine of res judicata which is set forth in Section 47 of Rule 39 of the Rules of
Court136 lays down two main rules, namely: (1) the judgment or decree of a court of
competent jurisdiction on the merits concludes the litigation between the parties and
their privies and constitutes a bar to a new action or suit involving the same cause of
action either before the same or any other tribunal; and (2) any right, fact, or matter in
issue directly adjudicated or necessarily involved in the determination of an action
before a competent court in which a judgment or decree is rendered on the merits is
conclusively settled by the judgment therein and cannot again be litigated between the
parties and their privies whether or not the claims or demands, purposes, or subject
matters of the two suits are the same.137 chanroble slaw
These two main rules mark the distinction between the principles governing the two
typical cases in which a judgment may operate as evidence.138 The first general rule
stated above and corresponding to the afore-quoted paragraph (b) of Section 47, Rule
39 of the Rules of Court, is referred to as "bar by former judgment"; while the second
general rule, which is embodied in paragraph (c) of the same section and rule, is known
as "conclusiveness of judgment."139 chanrob leslaw
Justice Fcliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals (197 SCRA
201, 210 [1991]), reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in regard to the
distinction between bar by former judgment which bars the prosecution of a second
action upon the same claim, demand, or cause of action, and conclusiveness of
judgment which bars the relitigation of particular facts or issues in another litigation
between the same parties on a different claim or cause of action.
The general rule precluding the re-litigation of material facts or questions
which were in issue and adjudicated in former action are commonly applied to
all matters essentially connected with the subject matter of the litigation.
Thus, it extends to questions necessarily implied in the final judgment,
although no specific finding may have been made in reference thereto and
although such matters were directly referred to in the pleadings and were not
actually or formally presented. Under this rule, if the record of the former trial
shows that the judgment could not have been rendered without deciding the
particular matter, it will be considered as having settled that matter as to all
future actions between the parties and if a judgment necessarily presupposes
certain premises, they are as conclusive as the judgment itself.141 (Emphases
supplied)
The foregoing disquisition finds application to the case at bar.
Undeniably, the present case is merely an adjunct of the 2004 case, in which the
automation contract was declared to be a nullity. Needless to say, the 2004 Decision
has since become final. As earlier explained, this Court arrived at several factual
findings showing the illegality of the automation contract; in turn, these findings were
used as basis to justify the declaration of nullity.
A closer scrutiny of the 2004 Decision would reveal that the judgment could not have
been rendered without deciding particular factual matters in relation to the following:
(1) identity, existence and eligibility of MPC as a bidder; (2) failure of the ACMs to pass
DOST technical tests; and (3) remedial measures undertaken by the COMELEC after the
award of the automation contract. Under the principle of conclusiveness of judgment,
We are precluded from re-litigating these facts, as these were essential to the question
of nullity. Otherwise stated, the judgment could not have been rendered without
necessarily deciding on the above-enumerated factual matters.
Thus, under the principle of conclusiveness of judgment, those material facts became
binding and conclusive on the parties, in this case MPEI and, ultimately, the persons
that comprised it. When a right or fact has been judicially tried and determined by a
court of competent jurisdiction, or when an opportunity for that trial has been given,
the judgment of the court—as long as it remains unreversed—should be conclusive
upon the parties and those in privity with them.142 Thus, the CA should not have
required petitioner to present further evidence of fraud on the part of respondent Willy
and MPEI, as it was already necessarily adjudged in the 2004 case.
No other procedural law principle is indeed more settled than that once a
judgment becomes final, it is no longer subject to change, revision,
amendment or reversal, except only for correction of clerical errors, or the
making of nunc pro tunc entries which cause no prejudice to any party, or
where the judgment itself is void. The underlying reason for the rule is two-fold: (1)
to avoid delay in the administration of justice and thus make orderly the discharge of
judicial business, and (2) to put judicial controversies to an end, at the risk of
occasional errors, inasmuch as controversies cannot be allowed to drag on indefinitely
and the rights and obligations of every litigant must not hang in suspense for an
indefinite period of time. As the Court declared in Yau v. Silverio,
Litigation must end and terminate sometime and somewhere, and it is essential to an
effective and efficient administration of justice that, once a judgment has become final,
the winning party be, not through a mere subterfuge, deprived of the fruits of the
verdict. Courts must therefore guard against any scheme calculated to bring about that
result. Constituted as they are to put an end to controversies, courts should frown upon
any attempt to prolong them.
Indeed, just as a losing party has the right to file an appeal within the prescribed
period, the winning party also has the correlative right to enjoy the finality of the
resolution of his case by the execution and satisfaction of the judgment. Any attempt to
thwart this rigid rule and deny the prevailing litigant his right to savor the fruit of his
victory must immediately be struck down. x x x. (Emphasis supplied)145 chanrob lesvi rtual lawlib rary
Next, respondents argue that the findings of fact in the 2004 Decision are not
conclusive146 considering that eight (8) of the fifteen (15) justices of this Court refused
to go along with the factual findings as stated in the majority opinion.147 This argument
fails to convince.
Fourteen (14) Justices participated in the promulgation of the 2004 Decision. Out of the
fourteen (14) Justices, three (3) Justices registered their dissent,148 and two (2)
Justices wrote their Separate Opinions, each recommending the dismissal of the
Petition.149 Of the nine (9) Justices who voted to grant the Petition, four (4) joined
the ponente in his disposition of the case,150 and two (2) Justices wrote Separate
Concurring Opinions.151 As to the remaining two (2) Justices, one (1) Justice152 merely
concurred in the result, while the other joined another Justice in her Separate
Opinion.153chanroble slaw
IV.
The delivery of 1,991 units of ACMs does not negate fraud on the part of
respondents Willy and MPEI.
The CA in its Amended Decision explained that respondents could not be considered to
have fostered a fraudulent intent to not honor their obligation, since they delivered
1,991 units of ACMs.154 In turn, respondents argue that respondent MPEI had every
intention of fulfilling its obligation, because it in fact delivered the ACMs as required by
the automation contract.155 chanrobles law
We disagree with the CA and respondents. The fact that the ACMs were delivered
cannot induce this Court to disregard the fraud respondent MPEI had employed in
securing the award of the automation contract, as established above. Furthermore, they
cannot cite the fact of delivery in their favor, considering that the ACMs delivered were
substandard and noncompliant with the requirements initially set for the automation
project.
In Our 2004 Decision, We already found the ACMs to be below the standards set by the
COMELEC. The noncompliant status of these ACMs was reiterated by this Court in its
2005 and 2006 Resolutions. The CA therefore gravely erred in considering the delivery
of 1,991 ACMs as evidence of respondents' willingness to perform the obligation (and
thus, their lack of fraud) considering that, as exhaustively discussed earlier, the ACMs
delivered were plagued with defects and failed to meet the requirements set for the
automation project.
Under Article 1233 of the New Civil Code, a debt shall not be understood to have been
paid, unless the thing or service in which the obligation consists has been completely
delivered or rendered. In this case, respondents cannot be considered to
have performed their obligation, because the ACMs were defective.
V.
Estoppel does not lie against the State when it acts to rectify the mistakes,
errors or illegal acts of its officials and agents.
Respondents claim that the 2004 Decision may not be invoked against them, since the
petitioner and the respondents were co-respondents and not adverse parties in the
2004 case. Respondents further explain that since petitioner and respondents were on
the same side at the time, had the same interest, and took the same position on the
validity and regularity of the automation contract, petitioner cannot now invoke the
2004 Decision against them.156 chanrobles law
The equitable doctrine of estoppel for the prevention of injustice and is for the
protection of those who have been misled by that which on its face was fair and whose
character, as represented, parties to the deception will not, in the interest of justice, be
heard to deny.159 It cannot therefore be utilized to insulate from liability the very
perpetrators of the injustice complained of.
VI.
The findings of the Office of the Ombudsman are not controlling in the instant
case.
Respondents further claim that this Court has recognized the fact that it did not
determine or adjudge any fraud that may have been committed by individual
respondents. Rather, it referred the matter to the Ombudsman for the determination of
criminal liability.160 The Ombudsman in fact made its own determination that there was
no probable cause to hold individual respondents criminally liable.161 chanrobleslaw
Respondents miss the point. The main issue in the instant case is whether respondents
are guilty of fraud in obtaining and executing the automation contract, to justify the
issuance of a writ of preliminary attachment in petitioner's favor. Meanwhile, the issue
relating to the proceedings before the Ombudsman (and this Court in G.R. No. 174777)
pertains to the finding of lack of probable cause for the possible criminal liability of
respondents under the Anti-Graft and Corrupt Practices Act.
CONCLUSION
If the State is to be serious in its obligation to develop and implement coordinated anti-
corruption policies that promote proper management of public affairs and public
property, integrity, transparency and accountability,162 it needs to establish and
promote effective practices aimed at the prevention of corruption,163 as well as
strengthen our efforts at asset recovery.164 chanroble slaw
No costs.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the September 14, 2005 Decision1 of the Court of
Appeals (CA) in CA-G.R. SP No. 90130 and its January 6, 2006
Resolution2denying the motion for reconsideration thereof.
Finding that Virata purportedly used Power Merge as a conduit and connived
with Wincorp's officers and directors to fraudulently obtain for his benefit
without any intention of paying the said placements, petitioner instituted, on
October 19, 2000, Civil Case No. 00-99006 for damages with the Regional
Trial Court (RTC) of Manila.6 One of the defendants impleaded in the
complaint is herein respondent Manuel Tankiansee, Vice-Chairman and
Director of Wincorp.7
On October 26, 2000, on the basis of the allegations in the complaint and the
October 12, 2000 Affidavit8 of petitioner, the trial court ordered the issuance of
a writ of preliminary attachment against the properties not exempt from
execution of all the defendants in the civil case subject, among others, to
petitioner's filing of a P50M-bond.9The writ was, consequently, issued on
November 6, 2000.10
Arguing that the writ was improperly issued and that the bond furnished was
grossly insufficient, respondent, on December 22, 2000, moved for the
discharge of the attachment.11 The other defendants likewise filed similar
motions.12 On October 23, 2001, the RTC, in an Omnibus Order,13 denied all
the motions for the discharge of the attachment. The defendants, including
respondent herein, filed their respective motions for reconsideration14 but the
trial court denied the same on October 14, 2002.15
Incidentally, while respondent opted not to question anymore the said orders,
his co-defendants, Virata and UEM-MARA Philippines Corporation (UEM-
MARA), assailed the same via certiorari under Rule 65 before the CA
[docketed as CA-G.R. SP No. 74610]. The appellate court, however, denied
the certiorari petition on August 21, 2003,16 and the motion for reconsideration
thereof on March 16, 2004.17 In a petition for review on certiorari before this
Court, in G.R. No. 162928, we denied the petition and affirmed the CA rulings
on May 19, 2004 for Virata's and UEM-MARA's failure to sufficiently show that
the appellate court committed any reversible error.18 We subsequently denied
the petition with finality on August 23, 2004.19
On September 30, 2004, respondent filed before the trial court another Motion
to Discharge Attachment,20 re-pleading the grounds he raised in his first
motion but raising the following additional grounds: (1) that he was not present
in Wincorp's board meetings approving the questionable transactions;21 and
(2) that he could not have connived with Wincorp and the other defendants
because he and Pearlbank Securities, Inc., in which he is a major stockholder,
filed cases against the company as they were also victimized by its fraudulent
schemes.22
Ruling that the grounds raised were already passed upon by it in the previous
orders affirmed by the CA and this Court, and that the additional grounds were
respondent's affirmative defenses that properly pertained to the merits of the
case, the trial court denied the motion in its January 6, 2005 Order.23
A.
IT IS RESPECTFULLY SUBMITTED THAT THE COURT OF APPEALS
SHOULD NOT HAVE GIVEN DUE COURSE TO THE PETITION FOR
CERTIORARI FILED BY RESPONDENT, SINCE IT MERELY RAISED
ERRORS IN JUDGMENT, WHICH, UNDER PREVAILING
JURISPRUDENCE, ARE NOT THE PROPER SUBJECTS OF A WRIT
OF CERTIORARI.
B.
C.
For his part, respondent counters, among others, that the general and
sweeping allegation of fraud against respondent in petitioner's affidavit-
respondent as an officer and director of Wincorp allegedly connived with the
other defendants to defraud petitioner-is not sufficient basis for the trial court
to order the attachment of respondent's properties. Nowhere in the said
affidavit does petitioner mention the name of respondent and any specific act
committed by the latter to defraud the former. A writ of attachment can only be
granted on concrete and specific grounds and not on general averments
quoting perfunctorily the words of the Rules. Connivance cannot also be
based on mere association but must be particularly alleged and established
as a fact. Respondent further contends that the trial court, in resolving the
Motion to Discharge Attachment, need not actually delve into the merits of the
case. All that the court has to examine are the allegations in the complaint and
the supporting affidavit. Petitioner cannot also rely on the decisions of the
appellate court in CA-G.R. SP No. 74610 and this Court in G.R. No. 162928 to
support his claim because respondent is not a party to the said cases.29
In the case at bench, the basis of petitioner's application for the issuance of
the writ of preliminary attachment against the properties of respondent is
Section 1(d) of Rule 57 of the Rules of Court which pertinently reads:
xxxx
For a writ of attachment to issue under this rule, the applicant must sufficiently
show the factual circumstances of the alleged fraud because fraudulent intent
cannot be inferred from the debtor's mere non-payment of the debt or failure
to comply with his obligation.30 The applicant must then be able to
demonstrate that the debtor has intended to defraud the creditor.31 In Liberty
Insurance Corporation v. Court of Appeals,32 we explained as follows:
The affidavit, being the foundation of the writ,35 must contain such particulars
as to how the fraud imputed to respondent was committed for the court to
decide whether or not to issue the writ.36 Absent any statement of other factual
circumstances to show that respondent, at the time of contracting the
obligation, had a preconceived plan or intention not to pay, or without any
showing of how respondent committed the alleged fraud, the general
averment in the affidavit that respondent is an officer and director of Wincorp
who allegedly connived with the other defendants to commit a fraud, is
insufficient to support the issuance of a writ of preliminary attachment.37 In the
application for the writ under the said ground, compelling is the need to give a
hint about what constituted the fraud and how it was perpetrated38 because
established is the rule that fraud is never presumed.39 Verily, the mere fact
that respondent is an officer and director of the company does not necessarily
give rise to the inference that he committed a fraud or that he connived with
the other defendants to commit a fraud. While under certain circumstances,
courts may treat a corporation as a mere aggroupment of persons, to whom
liability will directly attach, this is only done when the wrongdoing has been
clearly and convincingly established.40
We are not unmindful of the rule enunciated in G.B. Inc., etc. v. Sanchez, et
al.,45 that
[t]he merits of the main action are not triable in a motion to discharge an
attachment otherwise an applicant for the dissolution could force a trial
of the merits of the case on his motion.46
However, the principle finds no application here because petitioner has not yet
fulfilled the requirements set by the Rules of Court for the issuance of the writ
against the properties of respondent.47 The evil sought to be prevented by the
said ruling will not arise, because the propriety or impropriety of the issuance
of the writ in this case can be determined by simply reading the complaint and
the affidavit in support of the application.
Furthermore, our ruling in G.R. No. 162928, to the effect that the writ of
attachment is properly issued insofar as it concerns the properties of Virata
and UEM-MARA, does not affect respondent herein, for, as correctly ruled by
the CA, respondent is "never a party thereto."48 Also, he is not in the same
situation as Virata and UEM-MARA since, as aforesaid, while petitioner's
affidavit detailed the alleged fraudulent scheme perpetrated by Virata and/or
Power Merge, only a general allegation of fraud was made against
respondent.
We state, in closing, that our ruling herein deals only with the writ of
preliminary attachment issued against the properties of respondent-it does not
concern the other parties in the civil case, nor affect the trial court's resolution
on the merits of the aforesaid civil case.
SO ORDERED.
DECISION
CORONA, J.:
Betonval delivered the ready mixed concrete pursuant to the contracts but FSI failed to
pay its outstanding balances starting January 1992. As an accommodation to FSI,
Betonval extended the seven day credit period to 45 days.2
Thereafter, FSI paid Betonval according to the terms of its proposed schedule of
payments. It was able to reduce its debt to P1,114,203.34 as of July 1993, inclusive of
the 24% annual interest computed from the due date of the invoices.6 Nevertheless, it
failed to fully settle its obligation.
Betonval thereafter filed an action for sum of money and damages in the Regional Trial
Court (RTC).7 It also applied for the issuance of a writ of preliminary attachment
alleging that FSI employed fraud when it contracted with Betonval and that it was
disposing of its assets in fraud of its creditors.
FSI denied Betonval's allegations and moved for the dismissal of the complaint. The
amount claimed was allegedly not due and demandable because they were still
reconciling their respective records. FSI also filed a counterclaim and prayed for actual
damages, alleging that its other projects were delayed when Betonval attached its
properties and garnished its bank accounts. It likewise prayed for moral and exemplary
damages and attorney's fees.
The RTC issued a writ of preliminary attachment and approved the P500,000 bond of
respondent Stronghold Insurance Co., Inc. (Stronghold). FSI filed a counterbond
of P500,000 thereby discharging the writ of preliminary attachment, except with
respect to FSI's excavator, crawler crane and Isuzu pick-up truck, which remained
in custodia legis.8 An additional counterbond of P350,000 lifted the garnishment of FSI's
receivables from the Department of Public Works and Highways.
On January 29, 1999, the RTC ruled for Betonval.9 However, it awarded P200,000
compensatory damages to FSI on the ground that the attachment of its properties was
improper.10
FSI and Stronghold separately filed motions for reconsideration while Betonval filed a
motion for clarification and reconsideration. In an order dated May 19, 1999, the RTC
denied the motions for reconsideration of Betonval and Stronghold. However, the
January 29, 1999 decision was modified in that the award of actual or compensatory
damages to FSI was increased to P1.5 million.11
All parties appealed to the Court of Appeals (CA). However, only the respective appeals
of Betonval and Stronghold were given due course because FSI's appeal was dismissed
for nonpayment of the appellate docket fees.12
In its appeal, Betonval assailed the award of actual damages as well as the imposition
of legal interest at only 12%, instead of 24% as agreed on. Stronghold, on the other
hand, averred that the attachment was proper.
In its decision13 dated January 20, 2005, the CA upheld the May 19, 1999 RTC order
with modification. The CA held that FSI should pay Betonval the value of unpaid ready
mixed concrete at 24% p.a. interest plus legal interest at 12%. The CA, however,
reduced the award to FSI of actual and compensatory damages, thus:
WHEREFORE, premises considered, the appealed Order dated May 19, 1999
is MODIFIED as follows: (a) to increase the rate of interest imposable on the
P1,114,203.34 awarded to appellant Betonval from 12% to 24% per annum, with the
aggregate sum to further earn an annual interest rate of 12% from the finality of this
decision, until full payment; (b) to reduce the award of actual damages in favor of
appellee from P1,500,000.00 to P200,000.00; (c) to hold both appellants jointly and
severally liable to pay said amount; and (d) to hold appellant Betonval liable for
whatever appellant surety may be held liable under the attachment bond. The rest
is AFFIRMED in toto.
In this Petition for Review on Certiorari, 15 FSI prays for the following:
(a) decrease the rate of imposable interest on the P1,114,203.34 award to Betonval,
from 12% to 6% p.a. from date of judicial demand or filing of the complaint until the
full amount is paid;
(b) deduct [from the award to Betonval] the cost or value of unused cement based on
[its] invoice stating 1,307.45 bags computed at the prevailing price;
(d) hold Betonval and Stronghold jointly and severally liable to pay such actual and
compensatory damages;
(e) hold Betonval liable for whatever Stronghold may be held liable under the
attachment bond and
FSI argues that Betonval's complaint was prematurely filed. There was allegedly a need
to reconcile accounts, particularly with respect to the value of the unused cement
supplied by FSI, totaling 2,801.2 bags17 which supposedly should have been deducted
from FSI's outstanding obligation. FSI's repeated requests for reconciliation of accounts
were allegedly not heeded by Betonval's representatives.
FSI's contention is untenable. It neither alleged any discrepancies in nor objected to the
accounts within a reasonable time.18 As held by the RTC, FSI was deemed to have
admitted the truth and correctness of the entries in the invoices since:
[N]o attempts were made to reconcile [FSI's] own record with [Betonval] until
after the filing of the complaint, inspite of claims in [FSI's] Answer about its
significance, and despite having had plenty of opportunity to do so from the
time of receipt of the invoices or demand letters from [Betonval]. [FSI's]
excuse that it was impractical to reconcile accounts during the middle of
transactions is defeated by the absence of any showing on record that a
formal request to reconcile was issued to [Betonval] despite the completion of
deliveries or [FSI's] discovery of the alleged discrepancies, as well as its
failure to initiate any meeting with [Betonval], including one which the parties
were directed to hold for that purpose by the Court. Since [FSI] failed to prove
the correctness of its entries against those in [Betonval's] invoices, its record is self-
serving. xxx (emphasis supplied)
In view of FSI's failure to dispute this finding of the RTC because of its failure to perfect
its appeal, FSI is now estopped from raising this issue. There is no cogent reason to
depart from the RTC's finding. ςηα ñrοb lε š ν ιr†υ αl l αω lιb rαrÿ
Undaunted, FSI retracts. Instead of claiming the balance of the unused cement as
reflected in its records, it now bases its claim on the invoices of Betonval. FSI
relies on the RTC's statement in the May 19, 1999 order:
Still it can claim the cost of the balance of unused cement based on [Betonval's]
invoices, notwithstanding its admission of the obligation in the letter, as it neither
expressed nor implied any intent to waive that claim by said admission.
FSI contends that this declaration has become final and executory and must be
implemented in the name of substantial justice. Betonval, however, avers that that the
issue on the alleged unused cement was never raised as an affirmative defense in its
answer or in its motion for reconsideration to the January 29, 1999 decision. Neither
was this issue raised in the CA. Hence, FSI must not be allowed to broach it for the first
time in this Court. Betonval is correct.
It is well-settled that issues not raised in the trial court may not be raised for the first
time on appeal. Furthermore, defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived.19
More importantly, the portion of a decision that becomes the subject of an execution is
that ordained or decreed in the dispositive portion.20 In this case, there was no award
in favor of FSI of the value of the balance of the unused cement as reflected in the
invoices.
There is no dispute that FSI and Betonval stipulated the payment of a 30% p.a. interest
in case of overdue payments. There is likewise no doubt that FSI failed to pay Betonval
on time.
The obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one.24
The grant by Betonval to FSI of a 45-day credit extension did not novate the contracts
so as to extinguish the latter. There was no incompatibility between them. There was
no intention by the parties to supersede the obligations under the contracts. In fact, the
intention of the 45-day credit extension was precisely to revive the old obligation after
the original period expired with the obligation unfulfilled. The grant of a 45-day credit
period merely modified the contracts by extending the period within which FSI was
allowed to settle its obligation. Since the contracts remained the source of FSI's
obligation to Betonval, the stipulation to pay 30% p.a. interest likewise remained.
Obviously, the extension given to FSI was triggered by its own request, to help it
through its financial difficulties. FSI would now want to take advantage of that generous
accommodation by claiming that its liability for interest was extinguished by its
creditor's benevolence.
Neither did Betonval waive the stipulated interest rate of 30% p.a., as FSI erroneously
claims. A waiver is a voluntary and intentional relinquishment or abandonment of a
known legal right or privilege.25 A waiver must be couched in clear and unequivocal
terms which leave no doubt as to the intention of a party to give up a right or benefit
which legally pertains to him.26 FSI did not adduce proof that a valid waiver was made
by Betonval. FSI's claim is therefore baseless.
Parties are bound by the express stipulations of their contract as well as by what is
required by the nature of the obligation in keeping with good faith, usage and
law.27 Corollarily, if parties to a contract expressly provide for a particular rate of
interest, then that interest shall be applied.28
It is clear that Betonval and FSI agreed on the payment of interest. It is beyond
comprehension how Betonval's prayer for a 24% interest on FSI's balance could have
resulted in a situation as if no interest rate had been agreed upon. Besides, FSI's
proposed schedule of payments (September 3, 1992),29referring to Betonval's
statement of account,30 contained computations of FSI's arrears and billings with 24%
p.a. interest.
There can be no other conclusion but that Betonval had reduced the imposable interest
rate from 30% to 24% p.a. and this reduced interest rate was accepted, albeit
impliedly, by FSI when it proposed a new schedule of payments and, in fact, actually
made payments to Betonval with 24% p.a. interest. By its own actions, therefore, FSI is
estopped from questioning the imposable rate of interest.
We likewise hold that the imposition of a 12% p.a. interest on the award to Betonval (in
addition to the 24% p.a. interest) in the assailed judgment is proper. When the
judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest shall be 12% p.a. from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.31
Betonval's application for the issuance of the writ of preliminary attachment was based
on Section 1(d) and (e), Rule 57 of the Rules of Court. However, the CA affirmed the
RTC's factual findings that there was improper attachment of FSI's properties. In
debunking FSI's claim for actual damages, respondents insist that the attachment was
proper and that Betonval was able to sufficiently prove the existence of the grounds for
attachment. However, these are factual matters that have been duly passed upon by
the RTC and the CA and which are inappropriate in a Petition for Review .
Moreover, we agree with the RTC and the CA that FSI's properties were improperly
attached. Betonval was not able to sufficiently show the factual circumstances of the
alleged fraud because fraudulent intent cannot be inferred from FSI's mere nonpayment
of the debt or failure to comply with its obligation. In Ng Wee v. Tankiansee, we held
that the applicant must be able to demonstrate that the debtor intended to defraud the
creditor. Furthermore:
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.
In other words, mere failure to pay its debt is, of and by itself, not enough to justify an
attachment of the debtor's properties. A fraudulent intention not to pay (or not to
comply with the obligation) must be present.
In its bid for a bigger award for actual damages it allegedly suffered from the wrongful
attachment of its properties, FSI enumerates the standby costs of equipment and
manpower standby costs it allegedly lost. We cannot grant FSI's prayer. FSI did not
pursue its appeal to the CA as shown by its failure to pay the appellate docket fees. It is
well-settled that a party who does not appeal from the decision may not obtain any
affirmative relief from the appellate court other than what he has obtained from the
lower court whose decision is brought up on appeal.
SO ORDERED.
DECISION
MENDOZA, J.:
The present case involves the wrongful attachment and release of the petitioner's funds
to the adverse party and its plight to recover the same. It seems that when misfortune
poured down from the skies, the petitioner received a handful. The scales of justice,
however, do not tilt based on chance; rather on the proper application of law,
jurisprudence and justice.
This is a petition for review on certiorari seeking to reverse and set aside the October
21, 2013 Decision1and the April 1, 2014 Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 95421, which affirmed the January 15, 20103 and May 19,
20104 Orders of the Regional Trial Court of Manila, Branch 32 (RTC), in Civil Case No.
04-108940.
The Facts
On March 26, 1996, petitioner Excellent Quality Apparel, Inc. (petitioner), then
represented by Max L.F. Ying (Ying), Vice-President for Productions, and Alfiero R.
Orden, Treasurer, entered into a contract with Multi-Rich Builders (Multi-Rich), a single
proprietorship, represented by Wilson G. Chua, its President and General Manager, for
the construction of a garment factory within the Cavite Philippine Economic Zone
Authority (CPEZA). The duration of the project was for a maximum period of five (5)
months or 150 consecutive calendar days. Included in the contract was an Arbitration
Clause in case of dispute.
On November 27, 1996, the construction of the factory building was completed.
On February 20, 1997, Win Multi-Rich Builders, Inc. (Win Multi-Rich) was incorporated
with the Securities and Exchange Commission (SEC).
On January 26, 2004, Win Multi-Rich filed a complaint for sum of money and damages
against petitioner and Ying before the RTC.5 It also prayed for the issuance of a writ of
attachment, claiming that Ying was about to abscond and that petitioner had an
impending closure.
Win Multi-Rich then secured the necessary bond in the amount of P8,634,448.20 from
respondent Visayan Surety and Insurance Corporation (Visayan Surety)6 In the
Order,7 dated February 2, 2004, the RTC issued a writ of preliminary attachment in
favor of Win Multi-Rich.
To prevent the enforcement of the writ of preliminary attachment on its equipment and
machinery, petitioner issued Equitable PCI Bank Check No. 160149,8 dated February
16, 2004, in the amount of P8,634,448.20 payable to the Clerk of Court of the RTC.
On February 19, 2004, petitioner filed its Omnibus Motion,9 seeking to discharge the
attachment. Petitioner also questioned the jurisdiction of the RTC due to the presence
of the Arbitration Clause in the contract. It asserted that the case should have been
referred first to the Construction Industry Arbitration Commission (CIAC) pursuant to
Executive Order (E.O.) No. 1008.
The motion, however, was denied by the RTC in its Order,10 dated April 12, 2004,
because the issues of the case could be resolved after a fullblown trial.
On April 26, 2004, petitioner filed its Answer with Compulsory Counterclaim11 before
the RTC. It denied the material allegation of the complaint and sought the immediate
lifting of the writ of attachment. It also prayed that the bond filed by Win Multi-Rich to
support its application for attachment be held to satisfy petitioner's claim for damages
due to the improper issuance of such writ.
On April 29, 2004, the RTC issued another order directing the deposit of the garnished
funds of petitioner to the cashier of the Clerk of Court of the RTC.
Win Multi-Rich then filed a motion,13 dated April 29, 2004, to release petitioner's cash
deposit to it. Notably, the motion was granted by the RTC in the Order,14 dated May 3,
2004. Subsequently, on May 7, 2004, Win Multi-Rich posted Surety Bond No.
1019815 issued by respondent Far Eastern Surety and Insurance Co., Inc. (FESICO) for
the amount of P9,000,000.00, to secure the withdrawal of the cash deposited by
petitioner. Thus, Win Multi-Rich was able to receive the funds of petitioner even before
the trial began.
On June 18, 2004, petitioner filed a petition for certiorari16 under Rule 65 of the 1997
Rules of Civil Procedure before the CA. The petition sought to. annul and set aside the
April 12, 2004 and April 29, 2004 Orders of the RTC. Petitioner then filed its
Supplemental Manifestation and Motion,17 asserting that its cash deposit with the RTC
was turned over to Win Multi-Rich.
On March 14, 2006, the CA rendered a decision,18annulling the April 12 2004 and April
29, 2004 Orders of the RTC. It ruled, however, that the RTC had jurisdiction over the
case inspite of the arbitration clause because it was a suit for collection of sum of
money. The dispositive portion of which reads:
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IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby GRANTED. The Orders
dated April 12, 2004 and April 29, 2004 of respondent judge are hereby ANNULLED and
SET ASIDE. Accordingly, the writ of preliminary injunction is hereby MADE PERMANENT.
SO ORDERED.19
Petitioner filed a motion for reconsideration arguing, among others, that the CA
decision failed to state an order to return the garnished amount of P8,634,448.[20],
which was taken from its bank account and given to Win Multi-Rich. In its
Resolution,20 dated October 11, 2006, the CA denied the motion.
Aggrieved, petitioner elevated the matter to the Court by way of a petition for review
on certiorari under Rule 45, docketed as G.R. No. 175048.
On February 10, 2009, in G.R. No. 175048, the Court promulgated a decision21 in favor
of petitioner and held: first, that Win Multi-Rich was not a real party in interest; second,
that the RTC should not have taken cognizance of the collection suit because the
presence of the arbitration clause vested jurisdiction on the CIAC over all construction
disputes between petitioner and Multi-Rich; and lastly, that Win Multi-Rich could not
retain the garnished amount, as the RTC did not have jurisdiction to issue the
questioned writ of attachment and to order the release of the funds. The dispositive
portion reads:
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WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby
MODIFIED. Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is
ORDERED to return the garnished amount of EIGHT MILLION SIX HUNDRED THIRTY
FOUR THOUSAND FOUR HUNDRED FORTY-EIGHT PESOS AND TWENTY CENTAVOS
(P8,634,448.20), which was turned over by the Regional Trial Court, to petitioner with
legal interest of 12 percent (12%) per annum upon finality of this Decision until
payment.
SO ORDERED.22
Win Multi-Rich filed a motion for reconsideration but it was denied by the Court in its
April 20, 2009 Resolution.23 Pursuant to an entry of judgment,24 the Court's decision
became final and executory on June 2, 2009.
On June 26, 2009, petitioner moved for execution thereof, praying for the return of its
cash deposit and, in the event of refusal of Win Multi-Rich to comply, to hold Visayan
Surety and FESICO liable under their respective bonds.25 redarclaw
Win Multi-Rich, Visayan Surety and FESICO were served with copies of the motion for
execution.26During the August 7, 2009 hearing on the motion for execution, counsels
for petitioner, Win Multi-Rich and FESICO were present.27 The hearing, however, was
reset to September 16, 2009. On the said date, Win Multi-Rich, Visayan Surety and
FESICO were given fifteen (15) days to submit their respective comments or
oppositions to the motion for execution.28 redarclaw
On October 15, 2009, Win Multi-Rich opposed the motion for execution29 because the
cash deposit awarded to it by the RTC had been paid to suppliers and the said amount
was long overdue and demandable.
The RTC granted the motion for execution in an Order,30 dated October 19, 2009, and
issued a writ of execution.31 Visayan Surety and FESICO separately moved for
reconsideration of the RTC order.
The RTC Ruling
On January 15, 2010, the RTC issued the order,32 granting the surety respondents'
motion for reconsideration and lifting its October 19, 2009 Order insofar as it granted
the motion for execution against Visayan Surety and FESICO. The RTC absolved the
surety respondents because petitioner did not file a motion for judgment on the
attachment bond before the finality of judgment, thus, violating the surety respondents'
right to due process. It further held that the execution against the surety respondents
would go beyond the terms of the judgment sought to be executed considering that the
Court decision pertained to Win Multi-Rich only.
Petitioner moved for reconsideration, but its motion was denied by the RTC in its May
19, 2010 Order.33 redarclaw
Undaunted, petitioner appealed before the CA, arguing that there was no violation of
the right to due process because the liability of the surety respondents were based on
the bonds issued by them.
The CA Ruling
In the assailed decision, dated October 21, 2013, the CA found petitioner's appeal
without merit. Citing Section 20, Rule 57 of the 1997 Rules of Civil Procedure (Section
20, Rule 57), the CA held that petitioner failed to timely claim damages against the
surety before the decision of the Court became final and executory. It further stated
that a court judgment could not bind persons who were not parties to the action as the
records showed that Visayan Surety and FESICO were neither impleaded nor informed
of the proceedings before the Court in G.R. No. 175048. It was the view of the CA that
"[hjaving failed to observe very elementary rules of procedure which are mandatory,
[petitioner] caused its own predicament."
Petitioner filed a motion for reconsideration, but it was denied by the CA in the assailed
April 1, 2014 Resolution.
STATEMENT OF ISSUES
II
On October 3, 2014, Visayan Surety filed its Comment.35 It asserted that no application
for damages was filed before the Court in G.R. No. 175048. Thus, there was no
occasion to direct the RTC to hear and decide the claim for damages, which constituted
a violation of its right to due process. Also, Visayan Surety contended that Section 20,
Rule 57 provided a mandatory rule that an application for damages must be filed before
the judgment becomes final and executory.
On October 8, 2014, FESICO filed its Comment.36 It averred that petitioner failed to
comply with Section 20, Rule 57 of the Rules of Court because the hearing on the
motion for execution was conducted after the decision in G.R. No. 175048 had already
become final and executory. It also stated that petitioner failed to implead the surety
respondents as parties in G.R. No. 175048.
On January 26, 2015, petitioner filed its Consolidated Reply.37 It stressed that because
the highest court of the land had directed the return of the wrongfully garnished
amount to petitioner, proceedings on the application under Section 20, Rule 57, became
no longer necessary.
There was an application for damages; but there was no notice given to Visayan Surety
By its nature, preliminary attachment, under Rule 57 of the Rules of Court, "is an
ancillary remedy applied for not for its own sake but to enable the attaching party to
realize upon relief sought and expected to be granted in the main or principal action; it
is a measure auxiliary or incidental to the main action. As such, it is available during
the pendency of the action which may be resorted to by a litigant to preserve and
protect certain rights and interests therein pending rendition and for purposes of the
ultimate effects, of a final judgment in the case.38 In addition, attachment is also
availed of in order to acquire jurisdiction over the action by actual or constructive
seizure of the property in those instances where personal or substituted service of
summons on the defendant cannot be effected."39 redarc law
The party applying for the order of attachment must thereafter give a bond executed to
the adverse party in the amount fixed by the court in its order granting the issuance of
the writ.40 The purpose of an attachment bond is to answer for all costs and damages
which the adverse party may sustain by reason of the attachment if the court finally
rules that the applicant is not entitled to the writ.41 redarclaw
In this case, the attachment bond was issued by Visayan Surety in order for Win Multi-
Rich to secure the issuance of the writ of attachment. Hence, any application for
damages arising from the improper, irregular or excessive attachment shall be
governed by Section 20, Rule 57, which provides:
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Sec. 20. Claim for damages on account of improper, irregular or excessive attachment.
If the judgment of the appellate court be favorable to the party against whom the
attachment was issued, he must claim damages sustained during the pendency of the
appeal by filing an application in the appellate court, with notice to the party in whose
favor the attachment was issued or his surety or sureties, before the judgment of the
appellate court becomes executory. The appellate court may allow the application to be
heard and decided by the trial court.
Nothing herein contained shall prevent the party against whom the attachment was
issued from recovering in the same action the damages awarded to him from any
property of the attaching party not exempt from execution should the bond or deposit
given by the latter be insufficient or fail to fully satisfy the award.
The history of Section 20, Rule 57 was discussed in Malayan Insurance, Inc. v.
Salas42 In that case, the Court explained that Section 20, Rule 57 was a revised version
of Section 20, Rule 59 of the 1940 Rules of Court, which, in turn, was a consolidation of
Sections 170, 177, 223, 272, and 439 of the Code of Civil Procedure regarding the
damages recoverable in case of wrongful issuance of the writs of preliminary injunction,
attachment, mandamus and replevin and the appointment of a receiver.
Thus, the current provision of Section 20, Rule 57 of the 1997 Rules of Civil Procedure
covers application for damages against improper attachment, preliminary injunction,
receivership, and replevin.43Consequently, jurisprudence concerning application for
damages against preliminary injunction, receivership and replevin bonds can be equally
applied in the present case.
In a catena of cases,44 the Court has cited the requisites under Section 20, Rule 57 in
order to claim damages against the bond, as follows:
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1. The application for damages must be filed in the same case where the bond was
issued;chanRoblesvirtual Lawlib rary
2. Such application for damages must be filed before the entry of judgment; and
The purpose of requiring the application for damages to be filed in the same proceeding
is to avoid the multiplicity of suit and forum shopping. It is also required to file the
application against the bond before the finality of the decision to prevent the alteration
of the immutable judgment.47 redarclaw
In Paramount Insurance Corp. v. CA,48 the Court allowed an application for damages
incorporated in the answer with compulsory counterclaim of the defendant therein. The
sureties were properly notified of the hearing and were given their day in court.
Conversely, in the recent case of Advent Capital and Finance Corp. v. Young,49 the
application for damages against the bond was not allowed. The respondent therein filed
his omnibus motion claiming damages against surety after the dismissal order issued by
the trial court had attained finality.
In the present petition, the Court holds that petitioner sufficiently incorporated an
application for damages against the wrongful attachment in its answer with compulsory
counterclaim filed before the RTC. Petitioner alleged that the issuance of the improper
writ of attachment caused it actual damages in the amount of at least P3,000,000.00. It
added that the Equitable PCI Bank Check No. 160149 it issued to the RTC Clerk of
Court, to lift the improper writ of attachment, should be returned to it.50 Evidently,
these allegations constitute petitioner's application for damages arising from the
wrongful attachment, and the said application was timely filed as it was filed before the
finality of judgment.
The next requisite that must be satisfied by petitioner to hold Visayan Surety liable
would be that the judgment against the wrongful attachment was promulgated after the
hearing with notice to the surety. Certainly, the surety must be given prior notice and
an opportunity to be heard with respect to the application for damages before the
finality of the judgment. The Court rules that petitioner did not satisfy this crucial
element.
Section 20, Rule 57 specifically requires that the application for damages against the
wrongful attachment, whether filed before the trial court or appellate court, must be
with due notice to the attaching party and his surety or sureties. Such damages may be
awarded only after proper hearing and shall be included in the judgment on the main
case.
Due notice to the adverse party and its surety setting forth the facts supporting the
applicant's right to damages and the amount thereof under the bond is indispensable.
The surety should be given an opportunity to be heard as to the reality or
reasonableness of the damages resulting from the wrongful issuance of the writ. In the
absence of due notice to the surety, therefore, no judgment for damages may be
entered and executed against it.51 redarclaw
In the old case of Visayan Surety and Insurance Corp. v. Pascual,52 the application for
damages was made before the finality of judgment, but the surety was not given due
notice. The Court allowed such application under Section 20, Rule 59 of the 1940 Rules
of Court because there was no rule which stated that the failure to give to the surety
due notice of the application for damages would release the surety from the obligation
of the bond.53 redarclaw
The case of Visayan Surety and Insurance Corp. v. Pascual, however, was abandoned in
the subsequent rulings of the Court because this was contrary to the explicit provision
of Section 20, Rule 57.54 redarclaw
In People Surety and Insurance Co. v. CA,55 the defendant therein filed an application
for damages during the trial but the surety was not notified. The Court denied the
application and stated that "it is now well settled that a court has no jurisdiction to
entertain any proceeding seeking to hold a surety liable upon its bond, where the
surety has not been given notice of the proceedings for damages against the principal
and the judgment holding the latter liable has already become final."56 redarclaw
In Plaridel Surety & Insurance Co. v. De Los Angeles,57 a motion for execution against
the bond of the surety was filed after the finality of judgment. The petitioner therein
asserted that the motion for execution was a sufficient notification to the surety of its
application for damages. The Court ruled, that "[t]his notification, however, which was
made after almost a year after the promulgation of the judgment by the Court of
Appeals, did not cure the tardiness of the claim upon the liability of the surety, which,
by mandate of the Rules, should have been included in the judgment."58 redarclaw
In the present case, petitioner's answer with compulsory counterclaim, which contained
the application for damages, was not served on Visayan Surety.59 Also, a perusal of the
records60 revealed that Visayan Surety was not furnished any copies of the pleadings,
motions, processes, and judgments concerned with the application for damages against
the surety bond. Visayan Surety was only notified of the application when the motion
for execution was filed by petitioner on June 29, 2009, after the judgment in G.R. No.
175048 had become final and executory on June 2, 2009.
Clearly, petitioner failed to comply with the requisites under Section 20, Rule 57
because Visayan Surety was not given due notice on the application for damages before
the finality of judgment. The subsequent motion for execution, which sought to
implicate Visayan Surety, cannot alter the immutable judgment anymore.
While Visayan Surety could not be held liable under Section 20, Rule 57, the same
cannot be said of FESICO. In the case at bench, to forestall the enforcement of the writ
of preliminary attachment, petitioner issued Equitable PCI Bank Check No. 160149,
dated February 16, 2004, in the amount of P8,634,448.20 payable to the Clerk of Court
of the RTC. Pursuant to the RTC Order, dated April 29, 2004, the garnished funds of
petitioner were deposited to the cashier of the Clerk of Court of the RTC. The procedure
to discharge the writ of preliminary attachment is stated in Section 12, Rule 57, to
wit:
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Sec. 12. Discharge of attachment upon giving counterbond.
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After a writ of attachment has been enforced, the party whose property has been
attached, or the person appearing on his behalf, may move for the discharge of the
attachment wholly or in part on the security given. The court shall, after due notice
and hearing, order the discharge of the attachment if the movant makes a
cash deposit, or files a counter-bond executed to the attaching party with the
clerk of the court where the application is made, in an amount equal to that
fixed by the court in the order of attachment, exclusive of costs. But if the
attachment is sought to be discharged with respect to a particular property, the
counter-bond shall be equal to the value of that property as determined by the court. In
either case, the cash deposit or the counter-bond shall secure the payment of any
judgment that the attaching party may recover in the action. A notice of the deposit
shall forthwith be served on the attaching party. Upon the discharge of an attachment
in accordance with the provisions of this section, the property attached, or the proceeds
of any sale thereof, shall be delivered to the party making the deposit or giving the
counter-bond, or to the person appearing on his behalf, the deposit or counter-bond
aforesaid standing in place of the property so released. Should such counter-bond for
any reason to be found to be or become insufficient, and the party furnishing the same
fail to file an additional counter-bond, the attaching party may apply for a new order of
attachment.
[Emphasis Supplied]
Win Multi-Rich, however, took a step further and filed a motion to release petitioner's
cash deposit to it. Immediately, the RTC granted the motion and directed Win Multi-
Rich to post a bond in favor of petitioner in the amount of P9,000,000.00 to answer for
the damages which the latter may sustain should the court decide that Win Multi-Rich
was not entitled to the relief sought. Subsequently, Win Multi-Rich filed a surety bond
of FESICO before the RTC and was able to obtain the P8,634,448.20 cash deposit of
petitioner, even before the trial commenced.
Strictly speaking, the surety bond of FESICO is not covered by any of the provisions in
Rule 57 of the Rules of Court because, in the first place, Win Multi-Rich should not have
filed its motion to release the cash deposit of petitioner and the RTC should not have
granted the same. The release of the cash deposit to the attaching party is anathema to
the basic tenets of a preliminary attachment.
Cash deposits and counterbonds posted by the defendant to lift the writ of attachment
is a security for the payment of any judgment that the attaching party may obtain; they
are, thus, mere replacements of the property previously attached.62 Accordingly, the
P8,634,448.20 cash deposit of petitioner, as replacement of the properties to be
attached, should never have been released to Win Multi-Rich.
Nevertheless, the Court must determine the nature of the surety bond of FESICO. The
cash deposit or the counter-bond was supposed to secure the payment of any judgment
that the attaching party may recover in the action.63 In this case, however, Win Multi-
Rich was able to withdraw the cash deposit and, in exchange, it posted a surety bond of
FESICO in favor of petitioner to answer for the damages that the latter may sustain.
Corollarily, the surety bond of FESICO substituted the cash deposit of petitioner as a
security for the judgment. Thus, to claim damages from the surety bond of FESICO,
Section 17, Rule 57 could be applied. It reads:
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When the judgment has become executory, the surety or sureties on any counter-bond
given pursuant to the provisions of this Rule to secure the payment of the judgment
shall become charged on such counter-bond and bound to pay the judgment obligee
upon demand the amount due under the judgment, which amount may be recovered
from such surety or sureties after notice and summary hearing in the same action.
From a reading of the above-quoted provision, it is evident that a surety on a counter-
bond given to secure the payment of a judgment becomes liable for the payment of the
amount due upon: (1) demand made upon the surety; and (2) notice and summary
hearing on the same action.64 Noticeably, unlike Section 20, Rule 57, which requires
notice and hearing before the finality of the judgment in an application for damages,
Section 17, Rule 57 allows a party to claim damages on the surety bond after the
judgment has become executory.65 redarclaw
The question remains, in contrast to Section 20, why does Section 17 sanction the
notice and hearing to the surety after the finality of judgment? The answer lies in the
kind of damages sought to be enforced against the bond.
Under Section 20, Rule 57, in relation to Section 4 therein,66 the surety bond shall
answer for all the costs which may be adjudged to the adverse party and all damages
which he may sustain by reason of the attachment. In other words, the damages
sought to be enforced against the surety bond are unliquidated. Necessarily, a notice
and hearing before the finality of judgment must be undertaken to properly determine
the amount of damages that was suffered by the defendant due to the improper
attachment. These damages to be imposed against the attaching party and his sureties
are different from the principal case, and must be included in the judgment.
On the other hand, under Section 17, Rule 57, in relation to Section 12 therein, the
cash deposit or the counter-bond shall secure the payment of any judgment that the
attaching party may recover in the action. Stated differently, the damages sought to be
charged against the surety bond are liquidated. The final judgment had already
determined the amount to be awarded to the winning litigant on the main action. Thus,
there is nothing left to do but to execute the judgment against the losing party, or in
case of insufficiency, against its sureties.
Here, the Court is convinced that a demand against FESICO had been made, and that it
was given due notice and an opportunity to be heard on its defense. First, petitioner
filed a motion for execution on June 29, 2009, a copy of which was furnished to
FESICO;67second, petitioner filed a manifestation,68 dated July 13, 2009, that FESICO
was duly served with the said motion and notified of the hearing on August 7,
2009; third, during the August 7, 2009 hearing on the motion for execution, the
counsels for petitioner, Win Multi-Rich and FESICO were all present;69fourth, in an
Order, dated September 16, 2009, FESICO was given fifteen (15) days to submit its
comment or opposition to the motion for execution;70 and lastly, FESICO filed its
comment71 on the motion on October 1, 2009. Based on the foregoing, the
requirements under Section 17, Rule 57 have been more than satisfied.
Indeed, FESICO cannot escape liability on its surety bond issued in favor of petitioner.
The purpose of FESICO's bond was to secure the withdrawal of the cash deposit and to
answer any damages that would be inflicted against petitioner in the course of the
proceedings.72 Also, the undertaking73 signed by FESICO stated that the duration of the
effeetivity of the bond shall be from its approval by the court until the action is fully
decided, resolved or terminated.
FESICO cannot simply escape liability by invoking that it was not a party in G.R. No.
175048. From the moment that FESICO issued Surety Bond No. 10198 to Win Multi-
Rich and the same was posted before the RTC, the court has acquired jurisdiction over
the surety, and the provisions of Sections 12 and 17 of Rule 57 became operational.
Thus, the Court holds that FESICO is solidarity liable under its surety bond with its
principal Win Multi-Rich.
On a final note, the Court reminds the bench and the bar that lawsuits, unlike duels,
are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as
an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.74 redarclaw
WHEREFORE, the petition is PARTIALLY GRANTED. The October 21, 2013 Decision
and the April 1, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 95421
are AFFIRMED WITH MODIFICATION. The Regional Trial Court of Manila, Branch 32
in Civil Case No. 04-108940 is hereby ordered to proceed with the execution against
Far Eastern Surety & Insurance Co., Inc., to the extent of the amount of the surety
bond.
FIRST DIVISION
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated January 19,
2012 and the Resolution3 dated August 24, 2012 of the Court of Appeals (CA) in CA-
G.R. SP No. 97448, ordering the Regional Trial Court of Quezon City, Branch 215 (RTC)
to appoint a commissioner to determine the value of the attached properties of
respondents Spouses Dennis and Cherylin Garcia (respondents), and to discharge any
excessive attachment found thereby.
The Facts
On September 23, 2005, petitioner Northern Islands Co., Inc. (petitioner) filed a
Complaint4 with application for a writ of preliminary attachment, before the RTC against
respondents, docketed as Civil Case No. Q-05-53699 (Main Case), which was
subsequently amended5 on October 25, 2005.6 It alleged that: (a) from March to July
2004, petitioner caused the delivery to respondents of various appliances in the
aggregate amount of P8,040,825.17;7 (b) the goods were transported, shipped, and
delivered by Sulpicio Lines, Inc., and were accepted in good order and condition by
respondents’ representatives;8 (c) the parties agreed that the goods delivered were
payable within 120 days, and that the unpaid amounts would earn interest at a rate of
eighteen percent (18%) per annum;9 (d) however, the value of the goods were not paid
by respondents despite repeated demands;10 and (e) respondents fraudulently asserted
that petitioner had no proof that they had indeed received the quantity of the subject
goods.11
Instead of filing an answer, respondents filed on November 11, 2001, an Urgent Motion
for Extension of Time to File Proper Pleading and Motion for Discovery (Production and
Inspection)13 (November 11, 2001 Motion), asking the RTC to allow them to photocopy
and personally examine the original invoices, delivery cargo receipts, and bills of lading
attached to the Amended Complaint, claiming that they could not “come up with an
intelligent answer” without being presented with the originals of such documents.14
In an Order17 dated February 28, 2006, the RTC denied the November 11, 2001 Motion,
and, instead, directed respondents to file their answer, which the latter complied with
through the filing of their Answer Ad Cautelam Ex Abudante with Compulsory
Counterclaim18 on April 3, 2006. Despite this, respondents again filed a Motion for
Leave of Court to File Motion for Discovery (Production and Inspection)19 (Motion for
Discovery) on April 7, 2006.20
On the other hand, the RTC granted the Motion for Discovery in accordance with Rule
27 of the Rules of Court, despite petitioner’s claim that it did not have the originals of
the documents being sought.23
However, no production or inspection was conducted on July 10, 2006 as the RTC
directed since respondents received the copy of the above order only on July 11,
2006.24
On July 25, 2006, respondents filed a Motion for Partial Reconsideration of the Order
dated June 21, 2006, specifically assailing the denial of their Motion to Discharge
Excess Attachment. In this relation, they prayed that the RTC refer to a commissioner,
pursuant to Rule 32 of the Rules of Court, the factual determination of the total
aggregate amount of respondents’ attached properties so as to ascertain if the
attachment was excessive. Also, they prayed that the order for production and
inspection be modified and that petitioner be ordered to produce the original documents
anew for their inspection and copying. 25
The foregoing motion was, however, denied by the RTC in an Order26 dated August 23,
2006 for lack of merit. Thus, respondents elevated the matter to the CA via petition
for certiorari and mandamus,27docketed as CA-G.R. SP No. 97448 (Certiorari Case).
In the interim, the RTC rendered a Decision28 dated September 21, 2011 in the Main
Case. Essentially, it dismissed petitioner’s Amended Complaint due to the absence of
any evidence to prove that respondents had agreed to the pricing of the subject
goods.29
The RTC’s September 21, 2011 Decision was later appealed30 by petitioner before the
CA on October 27, 2011. Finding that the Notice of Appeal was seasonably filed, with
the payment of the appropriate docket fees, the RTC, in an Order31 dated January 25,
2012, ordered the elevation of the entire records of the Main Case to the CA. The
appeal was then raffled to the CA’s Eighth Division, and docketed as CA-G.R. CV No.
98237. On the other hand, records do not show that respondents filed any appeal.32
Meanwhile, the CA, in a Decision33 dated January 19, 2012, partly granted
the certiorari petition of respondents, ordering the RTC to appoint a commissioner as
provided under Rule 32 of the Rules of Court as well as the subsequent discharge of
any excess attachment if so found therein, and, on the other hand, denying
respondents’ Motion for Discovery.34
It held that: (a) on the issue of attachment, trial by commissioners under Rule 32 of
the Rules of Court was proper so that the parties may finally settle their conflicting
valuations;35 and (b) on the matter of discovery, petitioner could not be compelled to
produce the originals sought by respondents for inspection since they were not in the
former’s possession.36
Aggrieved, petitioner filed a Motion for Partial Reconsideration37 on February 13, 2012
but was, however, denied in a Resolution38 dated August 24, 2012, hence, the present
petition.
The issues presented for the Court’s resolution are: (a) whether the RTC had lost
jurisdiction over the matter of the preliminary attachment after petitioner appealed the
decision in the Main Case, and thereafter ordered the transmittal of the records to the
CA; and (b) whether the CA erred in ordering the appointment of a commissioner and
the subsequent discharge of any excess attachment found by said commissioner.
Section 9, Rule 41 of the Rules of Court provides that in appeals by notice of appeal,
the court loses jurisdiction over the case upon the perfection of the appeals
filed in due time and the expiration of the time to appeal of the other parties.
In this case, petitioner had duly perfected its appeal of the RTC’s September 21, 2011
Decision resolving the Main Case through the timely filing of its Notice of Appeal dated
October 27, 2011, together with the payment of the appropriate docket fees. The RTC,
in an Order39 dated January 25, 2012, had actually confirmed this fact, and thereby
ordered the elevation of the entire records to the CA. Meanwhile, records do not show
that respondents filed any appeal, resulting in the lapse of its own period to appeal
therefrom. Thus, based on Section 9, Rule 41, it cannot be seriously doubted that the
RTC had already lost jurisdiction over the Main Case.
With the RTC’s loss of jurisdiction over the Main Case necessarily comes its loss of
jurisdiction over all matters merely ancillary thereto. Thus, the propriety of conducting
a trial by commissioners in order to determine the excessiveness of the subject
preliminary attachment, being a mere ancillary matter to the Main Case, is now mooted
by its supervening appeal in CA-G.R. CV No. 98237.
Note that in Sps. Olib v. Judge Pastoral,40 the Court, in view of the nature of a
preliminary attachment, definitively ruled that the attachment itself cannot be the
subject of a separate action independent of the principal action because the attachment
was only an incident of such action, viz.:
It is an auxiliary remedy and cannot have an independent existence apart from the
main suit or claim instituted by the plaintiff against the defendant. Being merely
ancillary to a principal proceeding, the attachment must fail if the suit itself
cannot be maintained as the purpose of the writ can no longer be justified.
The consequence is that where the main action is appealed, the attachment which may
have been issued as an incident of that action, is also considered appealed and so also
removed from the jurisdiction of the court a quo. The attachment itself cannot be
the subject of a separate action independent of the principal action because
the attachment was only an incident of such action.41 (Emphases supplied)
That being said, it is now unnecessary to discuss the other issues raised herein. In fine,
the petition is granted and the assailed CA rulings are set aside.
WHEREFORE, the petition is GRANTED. The Decision dated January 19, 2012 and the
Resolution dated August 24, 2012 of the Court of Appeals in CA-G.R. SP No. 97448 are
hereby SET ASIDE.
SO ORDERED.
DECISION
Before this Court is a petition for review under Rule 45 of the 1997 Rules of
Civil Procedure assailing the Decision1dated September 16, 2005 as well as
the Resolution2 dated October 9, 2006 of the Court of Appeals in CA-G.R. SP
No. 79791, entitled "Bro. Bernard Oca, FSC, Bro. Dennis Magbanua, FSC,
Mrs. Cirila Mojica, Mrs. Josefina Pascual and St. Francis School of General
Trias, Cavite, Inc. v. Hon. Norbert J. Quisumbing, Jr., in his capacity as
Presiding Judge, Regional Trial Court, Branch 21, Imus, Cavite, and Mrs.
Laurita Custodio". Through said rulings, the appellate court dismissed the
petition for certiorari under Rule 65 with application for the issuance of a
temporary restraining order and/or writ of preliminary injunction against the
Orders dated August 5, 2003,3 August 21, 20034and October 8, 20035 issued
by Branch 21 of the Regional Trial Court (RTC) of Imus, Cavite in SEC Case
No. 024-02, entitled "Laurita Custodio, plaintiff, versus Bro. Bernard Oca, Bro.
Dennis Magbanua, Mrs. Cirila Mojica, Mrs. Josefina Pascual, and St. Francis
School, defendants."
The facts of this case, as narrated in the assailed September 16, 2005
Decision of the Court of Appeals, are as follows:
On July 9, 1973, petitioner St. Francis School of General Trias Cavite, Inc.
(School) was organized and established as a non-stock and non-profit
educational institution. The organization and establishment of the school was
accomplished through the assistance of the La Salle Brothers without any
formal agreement with the School. Thus, the incorporators of the School
consist of the following persons: private respondent Custodio, petitioner Cirila
Mojica (Mojica), petitioner Josefina Pascual (Pascual), Rev. Msgr. Feliz
Perez, Bro. Vernon Poore, FSC. The five original incorporators served as the
School’s Members and Board of Trustees until the deaths of Bro. Poore and
Msgr. Perez.
Petitioners declare that the membership of the DLSG Brothers in the Board of
Trustee[s] as its officers was valid since an election was conducted to that
effect.
On the other hand, Custodio challenges the validity of the membership of the
DLSG Brothers and their purported election as officers of the School. The
legality of the membership and election of the DLSG Brothers is the main
issue of the case in the lower court.
Custodio alleges that sometime in 1992, Bro. Franco was invited by Mrs.
Mojica to act as President of the School. This is because there was only the
Tres Marias (referring to the original incorporators, Pascual, Mojica and
Custodio) who [were] left tomanage the affairs of the school. Bro. Franco
accepted the invitation. However, while Bro. Franco acted as President and
presided over meetingsof the Tres Marias, he never participated in the
operation of the School and never exercised voting rights.
Custodio further alleges that on September 8, 1998, during one of the informal
meetings held at the School, Bro. Franco unilaterally declared the said
meeting as the Board of Trustees’ Meeting and at the same time an Annual
Meeting of the Members of the Corporation. During the meeting, Bro. Franco
declared that the corporation is composed of the Tres Marias and their
husbands, Dr. Castaneda and himself (Bro. Franco) as members. On the
other hand, the Board of Trustees was declared to be composed of Bro. Oca,
the Tres Marias and himself (Bro. Franco).
According to Custodio, when Bro. Franco eventually left and became inactive
in the School, Bro. Oca assumed his position as President and Chairman of
the Board of Trustees, without being formally admitted as member of the
School and without the benefit of an actual election. Custodio further states
that on December 6, 2000, Bro. Magbanua was introduced to the original
incorporators for the first time. Automatically, he was declared as Member of
the School and at the same time, Treasurer by Bro. Oca, also without any
formal admission into the corporate membership and without the benefit of an
actual election.
Custodio alleges that clearly the composition of the membership of the School
had no basis there being no formal admission as members nor election as
officers.
Under the proposed MOA, DLSG will supervise and control not only the
academic affairs of the School but also the matters of the finance,
administration and operations of the latter. Custodio vigorously opposed the
proposed MOA. Consequently, unable to convince Custodio and the
academic populace to accept the MOA, the DLSG brothers withdrew [their]
academic support from the School. A day after the rejection of the proposed
MOA, Mojica and Pascual retired as Administrators for Finance and Physical
Resource Development (PRD), respectively. However, they maintained their
positions as Members and Trustees of the School.
In reaction to her removal, respondent filed with the trial court, on October 3,
2002, a Complaint with Prayer for the Issuance of a Preliminary Injunction
against petitioners again assailing the legality of the membership of the Board
of Trustees of St. Francis School.9
On October 14, 2002, respondent filed another Motion for Clarification asking
the trial court toissue an order as to whom the matriculation fees should be
paid pending the hearing of the complaint and the earlier Manifestation and
Motion.11
Acting on the motions filed by respondent, the trial court in an Order dated
October 21, 2002, appointed Herminia Reynante (Reynante) as cashier of the
school and required all parties to turn over all money previously collected with
respect to matriculation fees and other related collectibles of the school to the
latter.12
At this point, it should be noted that petitioners Cirila Mojica and Josefina
Pascual put up another school called the Academy of St. John with the same
structure as petitioner St. Francis School. This fact was testified to by
petitioners’ counsel Atty. Armando Fojas during the preliminary hearings on
the main case.13
On February 26, 2003, respondent filed her Comment in which she averred
that contrary to petitioners’ claim, petitioners had not complied with the
October 21, 2002 Order for failure to include in their accounting, the funds
allegedly in Special Savings Deposit No. 239 and Special Savings Deposit
No. 459 or the retirement fund for the teachers of the School, amounts paid by
the canteen concessionaire, and amounts paid to three resigned teachers.16
In an Order17 dated March 24, 2003, the trial court acted upon petitioners’
February 19, 2003 Manifestation and respondent’s February 26, 2003
Comment. The text of the said March 24, 2003 Order is reproduced herein:
Defendants and Mr. Al Mojica are hereby directed, within ten days from
receipt hereof, to submit a reportand to turn-over to Ms. Herminia Reynante all
money collected by them, more particularly:
In the first questioned Order20 dated August 5, 2003, the lower court denied
the Manifestation and Motion of petitioners and reiterated its order for
petitioners to turn over the items enumerated in its March 24, 2003 Order.
Subsequently, in the second questioned Order21 dated August 21, 2003, the
trial court, acting favorably on private respondent’s October 9, 2002
Manifestation and Motion ruled: WHEREFORE, in view of the foregoing, the
motion is granted. Accordingly, a status quoorder is hereby issued wherein
the plaintiff is hereby allowed to continue discharging her functions as school
director and curriculum administrator as well as those who are presently and
actually discharging functions as school officer to continue performing their
duties until the application for the issuance of a temporary restraining order is
resolved.22
On September 1, 2003, petitioners filed a Motion for Clarification of the August
5, 2003 Order.23
Defendants are further directed toinform the court of the total amount of the
funds deposited reserved for teachers’ retirement, and in what bank and
under what account the same is deposited.25
Dissatisfied with the rulings made by the trial court, petitioners filed with the
Court of Appeals a petition for certiorari under Rule 65 with application for the
issuance of a temporary restraining order and/or writ of preliminary injunction
to nullify, for having been issued with grave abuse of discretion amounting to
lack or in excess of jurisdiction, the Orders dated August 5, 2003, August 21,
2003 and October 8, 2003 that were issued by the trial court.
Thus, petitioners filed the instant petition and submitted the following issues
for consideration in their Memorandum26 dated October 3, 2007:
A.
B.
On the other hand, respondent puts forward the following arguments in her
Memorandum28 dated October 9, 2007:
In fine, the sole issue in this case is whether or not the trial court committed
grave abuse of discretion inissuing the assailed Orders dated August 5, 2003,
August 21, 2003 and October 8, 2003.
Petitioners argue that the Court of Appeals, in its assailed September 16,
2005 Decision, failed to consider that no adequate proceedings had been
accorded to the petitioners by the trial court for the exercise of its right to be
heard on the matters subject of the questioned Orders. Furthermore,
petitioners point out that the Court of Appeals erroneously gave its imprimatur
to the trial court’s issuance of the assailed Status Quo Order dated August 21,
2003 without first requiring and accepting from respondent the requisite bond
that is required under the Interim Rules of Procedure for Intra-Corporate
Controversies.
On the other hand, respondent maintains that the manner of the issuance of
the assailed Orders of the trial court did not violate the due process rights of
petitioners. Respondent also claims that a valid ground for the issuance of the
assailed Status Quo Order dated August 21, 2003 did exist and that the
alleged failure of the trial court to require the posting of a bond prior to the
issuance of a status quoorder was mooted by the assailed Order dated
October 8, 2003 which required respondent and Reynante to file a bond in the
amount of ₱300,000.00 each.
In the case at bar, we find that petitioners were not denied due process by the
trial court when it issued the assailed Orders dated August 5, 2003, August
21, 2003 and October 8, 2003. The records would show that petitioners were
given the opportunity to ventilate their arguments through pleadings and that
the same pleadings were acknowledged in the text of the questioned rulings.
Thus, petitioners cannot claim grave abuse of discretion on the part of the trial
court on the basis of denial of due process.
However, with respect to the assailed Status Quo Order dated August 21,
2003, we find that the trial court has failed to comply with the pertinent
procedural rules regarding the issuance of a status quo order.
In the case before us, the trial court’s August 21, 2003 Status Quo Order
conflicted with the rules and jurisprudence in the following manner:
Second, the trial court’s omission of not requiring respondent to file a bond
before the issuance of the Status Quo Order dated August 21, 2003 is in
contravention with the express instruction of Section 1, Rule 10 of the Interim
Rules of Procedure for Intra-Corporate Controversies. Even the subsequent
order to post a bond as indicated in the assailed October 8, 2003 Order did
not cure this defect because a careful reading of the nature and purpose of
the bond would reveal that it was meant by the trial court as security solely for
the teachers’ retirement fund, the possession of which was given by the trial
court to respondent and Reynante. It was never intended and can never be
1âwphi 1
At this point, the Court finds it apropos to note that the Status Quo Order on
its face states that the same is effective until the application for the issuance
of a temporary restraining order is resolved. However, respondent's prayer for
a temporary restraining order or a writ of preliminary injunction in her
Complaint still appears to be pending before the trial court. For this reason,
the Court deems it necessary to direct the trial court to resolve the same at
the soonest possible time.
SO ORDERED.
SECOND DIVISION
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the December
12, 2014 Decision1 and June 26, 2015 Resolution2 of the Court of Appeals (CA) in CA-
G.R. SP No. 131714, which lifted the writ of preliminary attachment issued by the
Regional Trial Court, Branch 59, Makati City (RTC), in Civil Case No. 13-570, in favor of
petitioner Security Bank Corporation (Security Bank).
The Antecedents
On May 15, 2013, Security Bank filed a Complaint for Sum of Money (with Application
for Issuance of a Writ of Preliminary Attachment)3 against respondents Great Wall
Commercial Press Company, Inc. (Great Wall) and its sureties, Alfredo Buriel Atienza,
Fredino Cheng Atienza, and Spouses Frederick Cheng Atienza and Monica Cu Atienza
(respondents), before the RTC. The complaint sought to recover from respondents their
unpaid obligations under a credit facility covered by several trust receipts and surety
agreements, as well as interests, attorney's fees and costs. Security Bank argued that
in spite of the lapse of the maturity date of the obligations from December 11, 2012 to
May 7, 2013, respondents failed to pay their obligations. The total principal amount
sought was P10,000,000.00. On May 31, 2013, after due hearing, the RTC granted the
application for a writ of preliminary attachment of Security Bank, which then posted a
bond in the amount of P10,000,000.00.
In its Order,6 dated July 4, 2013, the RTC denied respondents' motion to lift, explaining
that the Credit Agreement7 and the Continuing Suretyship Agreement8 contained
provisions on representations and warranties; that the said representations and
warranties were the very reasons why Security Bank decided to extend the loan; that
respondents executed various trust receipt agreements but did not pay or return the
goods covered by the trust receipts in violation thereof; that they failed to explain why
the goods subject of the trust receipts were not returned and the proceeds of sale
thereof remitted; and that it was clear that respondents committed fraud in the
performance of the obligation.9
Respondents filed a motion for reconsideration, but it was denied by the RTC in its
Order,10 dated August 12, 2013.
Dissatisfied, respondents filed a petition for certiorari before the CA seeking to reverse
and set aside the RTC orders denying their motion to lift the writ of preliminary
attachment issued.
The CA Ruling
In its assailed decision, dated December 12, 2014, the CA lifted the writ of preliminary
attachment. The appellate court explained that the allegations of Security Bank were
insufficient to warrant the provisional remedy of preliminary attachment. It pointed out
that fraudulent intent could not be inferred from a debtor's inability to pay or comply
with its obligations. The CA opined that the non-return of the proceeds of the sale
and/or the goods subject of the trust receipts did not, by itself, constitute fraud and
that, at most, these were only averments for the award of damages once substantiated
by competent evidence. It also stressed that respondents' act of offering a repayment
proposal negated the allegation of fraud. The CA held that fraud must be present at the
time of contracting the obligation, not thereafter, and that the rules on the issuance of
a writ of attachment must be construed strictly against the applicant. It disposed the
case in this wise:
WHEREFORE, for the foregoing reasons, the instant petition is GRANTED. Accordingly,
the attachment over any property of petitioners by the writ of preliminary attachment is
ordered LIFTED effective upon the finality of this Decision. No costs.
SO ORDERED.11
Security Bank moved for reconsideration but its motion was denied by the CA in its
assailed resolution, dated June 26, 2015.
ISSUE
Security Bank argues that there are sufficient factual and legal bases to justify the
issuance of the writ of preliminary attachment. It claims that it was misled by
respondents, who employed fraud in contracting their obligation, as they made the
bank believe that they had the capacity to pay; that respondents also committed fraud
in the performance of their obligation when they failed to turn over the goods subject of
the trust receipt agreements,13 or remit the proceeds thereof despite demands; and
that these were not mere allegations in the complaint but facts that were testified to by
its witness and supported by written documents.
Security Bank added that respondents' effort to settle their outstanding obligation was
just a subterfuge to conceal their real intention of not honoring their commitment and
to delay any legal action that the bank would take against them; that respondents
submitted a repayment proposal through a letter, dated January 23, 2013, knowing
fully well that they were already in default; that they requested a meeting to discuss
their proposal but they failed to show up and meet with the bank's representative; and
that respondents did not submit any supporting documents to back up their repayment
proposal.
In their Comment,14 respondents countered that there was insufficient basis for the
issuance of the writ of preliminary attachment against them; that the mere failure to
pay their obligation was not an act of fraud; that the application for the issuance of the
writ of preliminary attachment, the affidavit of merit and judicial affidavit merely cited
general allegations of fraud and Security Bank failed to sufficiently show the factual
circumstances constituting fraud. Moreover, respondents claimed that they did not
commit fraud because they were earnestly negotiating with Security Bank for a loan
restructuring as shown by their Letter,15 dated January 23, 2013, and email
correspondences.
In its Reply,16 Security Bank stressed that respondents misled them on their financial
capacity and ability to pay their obligations. It emphasized that there were specific
allegations in its complaint and its witness testified that respondents committed fraud,
specifically their failure to comply with the trust receipt agreements, that they would
turn over the goods covered by the trust receipt agreements or the proceeds thereof to
Security Bank.
Preliminary Attachment
A writ of preliminary attachment is a provisional remedy issued upon the order of the
court where an action is pending. Through the writ, the property or properties of the
defendant may be levied upon and held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured by the attaching creditor against
the defendant. The provisional remedy of attachment is available in order that the
defendant may not dispose of the property attached, and thus prevent the satisfaction
of any judgment that may be secured by the plaintiff from the former.17
In this case, Security Bank relied on Section 1 (d), Rule 57 of the Rules of Court as
basis of its application for a writ of preliminary attachment. It reads:
RULE 57
Preliminary Attachment
Section 1. Grounds upon which attachment may issue. — At the commencement of the
action or at any time before entry of judgment, a plaintiff or any proper party may have
the property of the adverse party attached as security for the satisfaction of any
judgment that may be recovered in the following cases:
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 the performance
thereof;
xxx
For a writ of preliminary attachment to issue under the above-quoted rule, the applicant
must sufficiently show the factual circumstances of the alleged fraud. It is settled that
fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or
failure to comply with his obligation.18
While fraud cannot be presumed, it need not be proved by direct evidence and can well
be inferred from attendant circumstances. Fraud by its nature is not a thing susceptible
of ocular observation or readily demonstrable physically; it must of necessity be proved
in many cases by inferences from circumstances shown to have been involved in the
transaction in question.19
The allegations of Security Bank in support of its application for a writ of preliminary
attachment are as follow:
15. During the negotiation for the approval of the loan application/ renewal of
Respondents the latter through Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps.
Frederick Cheng Atienza and Monica Cu Atienza, assured SBC that the loan obligation
covered by the several Trust Receipts shall be paid in full on or before its maturity date
pursuant to the terms and conditions of the aforesaid trust receipts. However,
Respondents as well as the sureties failed to pay the aforesaid obligation.
16. In addition, the assurance to pay in full the obligation is further solidified by the
warranty of solvency provisions of the Credit Agreement, the pertinent portion of which
states that:
"5. Representations at Warranties. - The Borrower further represents and warrants that
xxxe) The maintenance of the Credit Facility is premised on the Borrower's continued
ability to service its obligations to its creditors. Accordingly, the Borrower hereby
warrants that while any of the Credit Obligations remain unpaid, the Borrower shall at
all times have sufficient liquid assets to meet operating requirements and pay all its/his
debts as they fall due. Failure of the Borrower to pay any maturing interest, principal or
other charges under the Credit Facility shall be conclusive evidence of violation of this
warranty."
"3. Liability of the Surety - The liability of the Surety is solidary, direct and immediate
and not contingent upon the pursuit by SBC of whatever remedies it may have against
the Borrower or the collateral/liens it may possess. If any of the Guaranteed Obligations
is not paid or performed on due date (at stated maturity or by acceleration), or upon
the occurrence of any of the events of default under Section 5 hereof and/or under the
Credit Instruments, the Surety shall without need for any notice, demand or any other
act or deed, immediately and automatically become liable therefor and the Surety shall
pay and perform the same."
19. Thus, in the light of the representation made by Respondents Commercial Press Co,
Inc., Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza
and Monica Cu Atienza that the loan shall be paid in full on or before maturity, coupled
by the warranty of solvency embodied in the Credit Agreement as well as the execution
of the Continuing Suretyship Agreement, the loan application was eventually approved.
20. Needless to say that without said representations and warranties, including the
Continuing Suretyship Agreement, the plaintiff would not have approved and granted
the credit facility to Respondents. It is thus clear that Respondents, Alfredo Buriel
Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and Monica Cu
Atienza, misled SBC and employed fraud in contracting said obligation.
21. Respondents, through its Vice President Fredino Cheng Atienza, likewise executed
various Trust Receipt Agreements with the plaintiff whereby it bound itself under the
following provision:
Despite the above covenants, defendants failed to pay nor return the goods subject of
the Trust Receipt Agreements.
22. Knowing fully well that they are already in default, Respondents and defendants
sureties submitted a repayment proposal through their letter dated January 23, 2013.
Through their lawyer, they likewise requested the bank for a meeting to discuss their
proposal. However, as it turned out, the proposed repayment proposal for their loan
was only intended to delay legal action against them. They failed to meet with the
Bank's representative and neither did they submit supporting documents to back up
their repayment proposal.20
To support its allegation of fraud, Security Bank attached the Affidavit21 of German
Vincent Pulgar IV (Pulgar), the Manager of the Remedial Management Division of the
said bank. He detailed how respondents represented to Security Bank that they would
pay the loans upon their maturity date. Pulgar added that respondents signed the
Credit Agreement which contained the Warranty of Solvency and several Trust Receipt
Agreements in favor of Security Bank. The said trust receipts were attached to the
complaint which stated that respondents were obligated to turn over to Security Bank
the proceeds of the sale of the good or to return the goods. The several demand letters
sent by Security Bank to respondents, which were unheeded, were likewise attached to
the complaint. These pieces of evidence were presented by Security Bank during the
hearing of the application for the issuance of a writ of preliminary attachment in the
RTC.
After a judicious study of the records, the Court finds that Security Bank was able to
substantiate its factual allegation of fraud, particularly, the violation of the trust receipt
agreements, to warrant the issuance of the writ of preliminary attachment.
There were violations of the
trust receipts agreements
While the Court agrees that mere violations of the warranties and representations
contained in the credit agreement and the continuing suretyship agreement do not
constitute fraud under Section 1(d) of Rule 57 of the Rules of Court, the same cannot
be said with respect to the violation of the trust receipts agreements.
A trust receipt transaction is one where the entrustee has the obligation to deliver to
the entruster the price of the sale, or if the merchandise is not sold, to return the
merchandise to the entruster. There are, therefore, two obligations in a trust receipt
transaction: the first refers to money received under the obligation involving the duty
to turn it over (entregarla) to the owner of the merchandise sold, while the second
refers to the merchandise received under the obligation to "return" it (devolvera) to the
owner.22The obligations under the trust receipts are governed by a special law,
Presidential Decree (P.D.) No. 115, and non-compliance have particular legal
consequences.
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as estafa under
Article 315 (1) of the Revised Penal Code, without need of proving intent to
defraud.23 The offense punished under P.D. No. 115 is in the nature of malum
prohibitum. Mere failure to deliver the proceeds of the sale or the goods, if not sold,
constitutes a criminal offense that causes prejudice not only to another, but more to the
public interest.24
The present case, however, only deals with the civil fraud in the non-compliance with
the trust receipts to warrant the issuance of a writ of preliminary attached. A fortiori, in
a civil case involving a trust receipt, the entrustee's failure to comply with its
obligations under the trust receipt constitute as civil fraud provided that it is alleged,
and substantiated with specificity, in the complaint, its attachments and supporting
evidence.
Security Bank's complaint stated that Great Wall, through its Vice President Fredino
Cheng Atienza, executed various trust receipt agreements in relation to its loan
transactions. The trust receipts stated that in consideration of the delivery to the
entrustee (Great Wall) of the possession of the goods, it obligates itself to hold in trust
for the bank the goods, to sell the goods for the benefit of the bank, to turn over the
proceeds of the sale to the bank, and to return the goods to the bank in the event of
non-sale. By signing the trust receipt agreements, respondents fully acknowledged the
consequences under the law once they failed to abide by their obligations therein. The
said trust receipt agreements were attached to the complaint.
Upon the maturity date, however, respondents failed to deliver the proceeds of the sale
to Security Bank or to return the goods in case of non-sale. Security Bank sent a final
demand letter to respondents, which was also attached to the complaint, but it was
unheeded. Curiously, in their letter, dated January 23, 2013, respondents did not
explain their reason for non-compliance with their obligations under the trust receipts;
rather, they simply stated that Great Wall was having a sudden drop of its income.
Such unsubstantiated excuse cannot vindicate respondents from their failure to fulfill
their duties under the trust receipts.
In addition, Security Bank attached Pulgar's affidavit, which substantiated its allegation
that respondents failed to comply with its obligations under the trust receipts. During
the hearing before the RTC, Security Bank presented him and his judicial affidavit.
Regarding the trust receipts, he testified:
Q: Do you have any other basis in saying that you have grounds for attachment?
A: Yes, defendants not only failed to pay but they also failed to return the goods
covered by the Trust Receipt.
The Court is of the view that Security Bank's allegations of violation of the trust receipts
in its complaint was specific and sufficient to assert fraud on the part of respondents.
These allegations were duly substantiated by the attachments thereto and the
testimony of Security Bank's witness.
At face value, PBCom and the present case may show a semblance of similarity. Thus,
the CA cannot be faulted for relying on the said case. A closer scrutiny of these two
cases, however, shows that their similarity is more apparent than real.
In PBCom, the applicant for the writ of preliminary attachment simply stated in its
motion that the defendant therein failed to remit the proceeds or return the goods
subject of the trust receipt and attached an ambiguous affidavit stating that the case
was covered by Sections 1(b) and (d) of Rule 57. Obviously, these allegations and
attachments are too general and vague to prove that the defendant committed fraud.
Likewise, there was no hearing conducted in the RTC before it granted the issuance of
the writ of preliminary attachment. Thus, the Court had no option but to lift the said
writ.
In contrast, the complaint in the present case explained in detail the factual
circumstances surrounding the execution of the trust receipts, its contents and the
subsequent violation thereof. Security Bank attached supporting annexes and presented
its witness during the hearing in the RTC to substantiate the specific violation of trust
receipts by respondents. Security Bank took great lengths to explain the contents of the
trust receipt and show that respondents expressed their conformity to it. When the
obligation became due, respondents did not satisfactorily explain the non-compliance of
their obligations, and, despite a final demand, they did not fulfill their obligations under
the trust receipts. Clearly, PBCom is inapplicable in the present case.
The CA stated in the assailed decision that under Section 1(d) of Rule 57, fraud must
only be present at the time of contracting the obligation, and not thereafter. Hence, the
CA did not consider the allegation of fraud - that respondents offered a repayment
proposal but questionably failed to attend the meeting with Security Bank regarding the
said proposal - because these acts were done after contracting the obligation.
Previously, Section 1(d), Rule 57 of the 1964 Rules of Court provided that a writ of
preliminary attachment may be issued "[i]n 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 xxx" Thus, the fraud that justified the issuance of a writ of preliminary
attachment then was only fraud committed in contracting an obligation (dolo
casuante).28 When the 1997 Rules of Civil Procedure was issued by the Court, Section
1(d) of Rule 57 conspicuously included the phrase "in the performance thereof." Hence,
the fraud committed in the performance of the obligation (dolo incidente) was included
as a ground for the issuance of a writ of preliminary attachment.29
This significant change in Section 1(d) of Rule 57 was recognized recently in Republic v.
Mega Pacific eSolutions, Inc.30 The Court stated therein that "[a]n amendment to the
Rules of Court added the phrase "in the performance thereof to include within the scope
of the grounds for issuance of a writ of preliminary attachment those instances relating
to fraud in the performance of the obligation."
Final Note
While the Court finds that Security Bank has substantiated its allegation of fraud
against respondents to warrant the issuance of writ or preliminary attachment, this
finding should not in any manner affect the merits of the principal case. The writ of
preliminary attachment is only a provisional remedy, which is not a cause of action in
itself but is merely adjunct to a main suit.33
WHEREFORE, the December 12, 2014 Decision and the June 26, 2015 Resolution of
the Court of Appeals in CA-G.R. SP No. 131714 are REVERSED and SET ASIDE. The
issuance of the writ of preliminary attachment by the Regional Trial Court, Branch 59,
Makati City, in Civil Case No. 13-570, pursuant to its May 31, 2013 Order, is upheld.
SO ORDERED.
FIRST DIVISION
DECISION
JARDELEZA, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court filed by
petitioner Tsuneishi Heavy Industries (Cebu), Inc. (Tsuneishi) challenging the
Decision2 of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 03956 dated October 7,
2009 and its Resolution3 dated August 26, 2010. The CA Decision reversed three Orders
of Branch 7 of the Regional Trial Court (RTC), Cebu City dated April 15, 2008, July 7,
2008, and December 11, 2008, respectively.4 The Resolution denied Tsuneishi's motion
for reconsideration.
Respondent MIS Maritime Corporation (MIS) contracted Tsuneishi to dry dock and
repair its vessel M/T MIS-1 through an Agreement dated March 22, 2006.5 On March
23, 2006, the vessel dry docked in Tsuneishi's shipyard. Tsuneishi rendered the
required services. However, about a month later and while the vessel was still dry
docked, Tsuneishi conducted an engine test on M/T MIS-1. The vessel's engine emitted
smoke. The parties eventually discovered that this was caused by a burnt crank journal.
The crankpin also showed hairline cracks due to defective lubrication or deterioration.
Tsuneishi insists that the damage was not its fault while MIS insists on the contrary.
Nevertheless, as an act of good will, Tsuneishi paid for the vessel's new engine
crankshaft, crankpin, and main bearings.6
Tsuneishi billed MIS the amount of US$318,571.50 for payment of its repair and dry
docking services. MIS refused to pay this amount. Instead, it demanded that Tsuneishi
pay US$471,462.60 as payment for the income that the vessel lost in the six months
that it was not operational and dry docked at Tsuneishi's shipyard. It also asked that its
claim be set off against the amount billed by Tsuneishi. MIS further insisted that after
the set off, Tsuneishi still had the obligation to pay it the amount of
US$152,891.10.7Tsuneishi rejected MIS' demands. It delivered the vessel to MIS in
September 2006.8 On November 6, 2006, MIS signed an Agreement for Final
Price.9 However, despite repeated demands, MIS refused to pay Tsuneishi the amount
billed under their contract.
Tsuneishi claims that MIS also caused M/T White Cattleya, a vessel owned by Cattleya
Shipping Panama S.A. (Cattleya Shipping), to stop its payment for the services
Tsuneishi rendered for the repair and dry docking of the vessel.10
MIS argued that it lost revenues because of the engine damage in its vessel. This
damage occurred while the vessel was dry docked and being serviced at Tsuneishi's
yard. MIS insisted that since this arose out of Tsuneishi's negligence, it should pay for
MIS' lost income. Tsuneishi offered to pay 50% of the amount demanded but MIS
refused any partial payment.11
On April 10, 2008, Tsuneishi filed a complaint12 against MIS before the RTC. This
complaint stated that it is invoking the admiralty jurisdiction of the RTC to enforce a
maritime lien under Section 21 of the Ship Mortgage Decree of 197813 (Ship Mortgage
Decree). It also alleged as a cause of action MIS' unjustified refusal to pay the amount
it owes Tsuneishi under their contract. The complaint included a prayer for the issuance
of arrest order/writ of preliminary attachment. To support this prayer, the complaint
alleged that Section 21 of the Ship Mortgage Decree as well as Rule 57 of the Rules of
Court on attachment authorize the issuance of an order of arrest of vessel and/or writ
of preliminary attachment.14
In particular, Tsuneishi argued that Section 21 of the Ship Mortgage Decree provides
for a maritime lien in favor of any person who furnishes repair or provides use of a dry
dock for a vessel. Section 21 states that this may be enforced through an action in
rem. Further, Tsuneishi and MIS' contract granted Tsuneishi the right to take
possession, control and custody of the vessel in case of default of payment. Paragraph
9 of this contract further states that Tsuneishi may dispose of the vessel and apply the
proceeds to the unpaid repair bill.15
Finally, Tsuneishi's complaint alleges that there are sufficient grounds for the issuance
of a writ of preliminary attachment. In particular, it claims that MIS is guilty of fraud in
the performance of its obligation. The complaint states:
40. x x x Under the factual milieu, it is wrongful for defendant MIS Maritime to take
undue advantage of an unfortunate occurrence by withholding payment of what is justly
due to plaintiff under law and contract. Defendant MIS Maritime knew or ought to have
known that its claim for lost revenues was unliquidated and could not be set-off or
legally compensated against the dry-docking and repair bill which was liquidated and
already fixed and acknowledged by the parties.
41. Defendant CATTLEYA SHIPPING'S actions and actuations in performing its obligation
were clearly fraudulent because, firstly, it had no business getting involved as far as the
M/T MIS-1 incident was concerned; secondly, no incident of any sort occurred when its
vessel M/T WHITE CATTLEYA was dry docked and repaired. It had no claim against the
plaintiff. Yet, it (defendant Cattleya Shipping) allowed itself to be used by defendant
MIS Maritime when it willfully and unlawfully stopped paying plaintiff, and conspired to
make good defendant MIS Maritime's threat to "withhold payment of any and all billings
that you (plaintiff) may have against our fleet of vessels which include those registered
under Cattleya Shipping Panama S.A. (MT White Cattleya) x x x.16
Tsuneishi also filed the Affidavit17 of its employee Lionel T. Bitera (Bitera Affidavit), in
accordance with the requirement for the issuance of a writ of preliminary attachment
under Rule 57 of the Rules of Court. The Bitera Affidavit stated that Tsuneishi
performed dry docking and repair services for M/T MIS-1 and M/T White Cattleya. It
also alleged that after Tsuneishi performed all the services required, MIS and Cattleya
refused to pay their obligation. According to the Bitera Affidavit, this refusal to pay
constitutes fraud because:
d. The breach of the obligation was willful. In the case of M/T MIS-1 no single
installment payment was made despite the fact that the vessel was accepted fully dry
docked and with a brand new engine crankshaft installed by the yard free of charge to
the Owner. MIS Maritime Corporation was blaming the yard for the damage sustained
by the engine crank shaft on 25 April 2006 when the engine was started in preparation
for sea trial. When the incident happened the drydocking had already been completed
and the vessel was already in anchorage position for sea trial under the management
and supervisory control of the Master and engineers of the vessel. Besides, the incident
was not due to the fault of the yard. It was eventually traced to dirty lube oil or
defective main engine lubricating oil which was the lookout and responsibility of the
vessel's engineers.
xxxx
e. The action taken by MIS Maritime Corporation in setting off its drydocking obligation
against their claim for alleged lost revenues was unilaterally done, and without legal
and factual basis for while, on one hand, the drydocking bill was for a fixed and agreed
amount, the claim of MIS Maritime for lost revenues, on the other hand, was not
liquidated as it was for a gross amount, x x x
f. Cattleya Shipping for its part had nothing to do with the dry docking of M/T MIS-1.
There was no incident whatsoever during the dry docking of its vessel M/T WHITE
CATTLEYA. In fact, after this vessel was satisfactorily dry docked and delivered to its
Owner (Cattleya Shipping) the latter started paying the monthly installments without
any complaint whatsoever, x x x18
The RTC issued a writ of preliminary attachment in an Order19 dated April 15, 2008
(First Order) without hearing. Consequently, MIS' condominium units located in the
financial district of Makati, cash deposits with various banks, charter hire receivables
from Shell amounting to P26.6 Million and MT MIS-1 were attached.20
MIS filed a motion to discharge the attachment.21 The RTC denied this motion in an
Order[22 dated July 7, 2008 (Second Order). MIS filed a motion for reconsideration
which the RTC also denied in an Order23dated December 11, 2008 (Third Order).
MIS then filed a special civil action for certiorari24 before the CA assailing the three
Orders. MIS argued that the RTC acted with grave abuse of discretion when it ordered
the issuance of a preliminary writ of attachment and denied MIS' motion to discharge
and motion for reconsideration.
The CA ruled in favor of MIS. It reversed the three assailed Orders after finding that the
RTC acted with grave abuse of discretion in issuing the writ of preliminary
attachment.25
According to the CA, the Bitera Affidavit lacked the required allegation that MIS has no
sufficient security for Tsuneishi's claim. In fact, the CA held that the evidence on record
shows that MIS has sufficient properties to cover the claim. It also relied on
jurisprudence stating that when an affidavit does not contain the allegations required
under the rules for the issuance of a writ of attachment and the court nevertheless
issues the writ, the RTC is deemed to have acted with grave abuse of discretion.
Consequently, the writ of preliminary attachment is fatally defective.26 The CA further
highlighted that a writ of preliminary attachment is a harsh and rigorous remedy. Thus,
the rules must be strictly construed. Courts have the duty to ensure that all the
requisites are complied with.27
The CA also found that the RTC ordered the issuance of the writ of preliminary
attachment despite Tsuneishi's failure to prove the presence of fraud. It held that the
bare and unsubstantiated allegation in the Bitera Affidavit that MIS willfully refused to
pay its obligation is not sufficient to establish prima facie fraud. The CA emphasized
that a debtor's mere inability to pay is not fraud. Moreover, Tsuneishi's allegations of
fraud were general. Thus, they failed to comply with the requirement in the Rules of
Court that in averments of fraud, the circumstances constituting it must be alleged with
particularity. The CA added that while notice and hearing are not required for the
issuance of a writ of preliminary attachment, it may become necessary in instances
where the applicant makes grave accusations based on grounds alleged in general
terms. The CA also found that Tsuneishi failed to comply with the requirement that the
affidavit must state that MIS has no other sufficient security to cover the amount of its
obligation.28
WHEREFORE, the petition is GRANTED. The three (3) Orders dated April 15, 2008,
July 7, 2008 and December 11, 2008, respectively, of the Regional Trial Court, Branch
7, Cebu City, in Civil Case No. CEB-34250, are ANNULLED and SET
ASIDE.29 (Emphasis in the original, citations omitted.)
Tsuneishi filed this petition for review on certiorari under Rule 45 of the Rules of Court
challenging the CA's ruling. Tsuneishi pleads that this case involves a novel question of
law. It argues that while Section 21 of the Ship Mortgage Decree grants it a maritime
lien, the law itself, unfortunately, does not provide for the procedure for its
enforcement. It posits that to give meaning to this maritime lien, this Court must rule
that the procedure for its enforcement is Rule 57 of the Rules of Court on the issuance
of the writ of preliminary attachment. Thus, it proposes that aside from the identified
grounds for the issuance of a writ of preliminary attachment in the Rules of Court, the
maritime character of this action should be considered as another basis to issue the
writ.30
To support its application for the issuance of a writ of preliminary attachment, Tsuneishi
also invokes a provision in its contract with MIS which states that:
It insists that the writ of preliminary attachment must be issued so as to give effect to
this provision in the contract.
Tsuneishi also disputes the CA's finding that it Failed to show fraud in MIS' performance
of its obligation. It opines that MIS' failure to comply with its obligation does not arise
from a mere inability to pay. If that were the case, then the CA would be correct in
saying that MIS committed no fraud. However, MIS' breach of its obligation in this case
amounts to a gross unwillingness to pay amounting to fraud.32
Tsuneishi adds that the CA erred in holding that the RTC acted with grave abuse of
discretion when it failed to conduct a hearing prior to the issuance of the writ of
preliminary attachment. It insisted that the Rules of Court, as well as jurisprudence,
does not require a hearing prior to issuance.33
Finally, Tsuneishi disagrees with the ruling of the CA that it did not comply with the
requirements under the rules because the Bitera Affidavit did not state that MIS has no
other sufficient security. This was already stated in Tsuneishi's complaint filed before
the RTC. Thus, the rules should be applied liberally in favor of rendering justice.34
In its comment,35 MIS challenges Tsuneishi's argument that its petition raises a novel
question of law. According to MIS, the issue in this case is simple. A reading of
Tsuneishi's complaint shows that it prayed for the issuance of a writ of preliminary
attachment under Rule 57 of the Rules of Court or arrest of vessel to enforce its
maritime lien under the Ship Mortgage Decree.36 Thus, Tsuneishi knew from the start
that a remedy exists for the enforcement of its maritime lien—through an arrest of
vessel under the Ship Mortgage Decree. However, the RTC itself characterized the
complaint as a collection of sum of money with prayer for the issuance of a writ of
preliminary attachment. Thus, what it issued was a writ of preliminary attachment.
Unfortunately for Tsuneishi, the CA reversed the RTC because it found that the element
of fraud was not duly established. Thus, there was no ground for the issuance of a writ
of preliminary attachment.37
MIS insists that Tsuneishi is raising this alleged novel question of law for the first time
before this Court in an attempt to skirt the issue that it failed to sufficiently establish
that MIS acted with fraud in the performance of its obligation. MIS contends that fraud
cannot be inferred from a debtor's mere inability to pay. There is no distinction between
inability and a refusal to pay where the refusal is based on its claim that Tsuneishi
damaged its vessel. According to MIS, its vessel arrived at Tsuneishi's shipyard on its
own power. Its engine incurred damage while it was under Tsuneishi's custody. Thus,
Tsuneishi is presumed negligent.38
MIS further highlights that Tsuneishi completed the dry docking in April 2006. It was
during this time that the damage in the vessel's engine was discovered. The vessel was
turned over to MIS only in September 2006. Thus, it had lost a significant amount of
revenue during the period that it was off-hire. Because of this, it demanded payment
from Tsuneishi which the latter rejected.39
Hence, MIS argues that this is not a situation where, after Tsuneishi rendered services,
MIS simply absconded. MIS has the right to demand for the indemnification of its lost
revenue due to Tsuneishi's negligence.[40
MIS further adds that the CA correctly held that there was no statement in the Bitera
Affidavit that MIS had no adequate security to cover the amount being demanded by
Tsuneishi. Tsuneishi cannot validly argue that this allegation is found in its complaint
and that this should be deemed compliance with the requirement under Rule 57. 41
Further, in its motion to discharge the preliminary attachment, MIS presented proof
that it has the financial capacity to pay any liability arising from Tsuneishi's claims. In
fact, there was an excessive levy of MIS' properties. This is proof in itself that MIS has
adequate security to cover Tsuneishi's claims. Finally, MIS agrees with the CA that the
RTC should have conducted a hearing. While it is true that a hearing is not required by
the Rules of Court, jurisprudence provides that a hearing is necessary where the
allegations in the complaint and the affidavit are mere general averments. Further,
where a motion to discharge directly contests the allegation in the complaint and
affidavit, the applicant has the burden of proving its claims of fraud.42
There are two central questions presented for the Court to resolve, namely: (1)
whether a maritime lien under Section 21 of the Ship Mortgage Decree may be enforced
through a writ of preliminary attachment under Rule 57 of the Rules of Court; and (2)
whether the CA correctly ruled that Tsuneishi failed to comply with the requirements for
the issuance of a writ of preliminary injunction.
We begin by classifying the legal concepts of lien, maritime lien and the provisional
remedy of preliminary attachment.
Sec. 21. Maritime Lien for Necessaries; Persons entitled to such Lien. – Any person
furnishing repairs, supplies, towage, use of dry dock or marine railway, or other
necessaries to any vessel, whether foreign or domestic, upon the order of the owner of
such vessel, or of a person authorized by the owner, shall have a maritime lien on the
vessel, which may be enforced by suit in rem and it shall be necessary to allege or
prove that credit was given to the vessel.
In practical terms, this means that the holder of the lien has the right to bring an action
to seek the sale of the vessel and the application of the proceeds of this sale to the
outstanding obligation. Through this lien, a person who furnishes repair, supplies,
towage, use of dry dock or marine railway, or other necessaries to any vessel, in
accordance with the requirements under Section 21, is able to obtain security for the
payment of the obligation to him.
A party who has a lien in his or her favor has a remedy in law to hold the property
liable for the payment of the obligation. A lienholder has the remedy of filing an action
in court for the enforcement of the lien. In such action, a lienholder must establish that
the obligation and the corresponding lien exist before he or she can demand that the
property subject to the lien be sold for the payment of the obligation. Thus, a lien
functions as a form of security for an obligation.
Liens, as in the case of a maritime lien, arise in accordance with the provision of
particular laws providing for their creation, such as the Ship Mortgage Decree which
clearly states that certain persons who provide services or materials can possess a lien
over a vessel. The Rules of Court also provide for a provisional remedy which effectively
operates as a lien. This is found in Rule 57 which governs the procedure for the
issuance of a writ of preliminary attachment.
An attachment proceeding is for the purpose of creating a lien on the property to serve
as security for the payment of the creditors' claim. Hence, where a lien already exists,
as in this case a maritime lien, the same is already equivalent to an attachment. x x x48
To be clear, we repeat that when a lien already exists, this is already equivalent to an
attachment. This is where Tsuneishi's argument fails. Clearly, because it claims a
maritime lien in accordance with the Ship Mortgage Decree, all Tsuneishi had to do is to
file a proper action in court for its enforcement. The issuance of a writ of preliminary
attachment on the pretext that it is the only means to enforce a maritime lien is
superfluous. The reason that the Ship Mortgage Decree does not provide for a detailed
procedure for the enforcement of a maritime lien is because it is not necessary. Section
21 already provides for the simple procedure—file an action in rem before the court.
To our mind, this alleged novel question of law is a mere device to remedy the error
committed by Tsuneishi in the proceedings before the trial court regarding the issuance
of a writ of preliminary attachment. We note that the attachment before the trial court
extended to other properties other than the lien itself, such as bank accounts and real
property. Clearly, what was prayed for in the proceedings below was not an attachment
for the enforcement of a maritime lien but an attachment, plain and simple.
II
At the onset, we note that these questions dwell on whether there was sufficient
evidence to prove that Tsuneishi complied with the requirements for the issuance of a
writ of preliminary attachment. Sufficiency of evidence is a question of fact which this
Court cannot review in a Rule 45 petition. We are not a trier of fact.
Nevertheless, we have examined the record before us and we agree with the factual
findings of the CA.
The record clearly shows that the Bitera Affidavit does not state that MIS has no other
sufficient security for the claim sought to be enforced. This is a requirement under
Section 3, Rule 57 of the Rules of Court. We cannot agree with Tsuneishi's insistence
that this allegation need not be stated in the affidavit since it was already found in the
complaint. The rules are clear and unequivocal. There is no basis for Tsuneishi's
position. Nor is it entitled to the liberal application of the rules. Not only has Tsuneishi
failed to justify its omission to include this allegation, the facts also do not warrant the
setting aside of technical rules. Further, rules governing the issuance of a writ of
preliminary attachment are strictly construed.
We also agree with the CA's factual finding that MIS did not act with fraud in refusing to
pay the obligation. We emphasize that when fraud is invoked as a ground for the
issuance of a writ of preliminary attachment under Rule 57 of the Rules of Court, there
must be evidence clearly showing the factual circumstances of the alleged
fraud.49 Fraud cannot be presumed from a party's mere failure to comply with his or her
obligation. Moreover, the Rules of Court require that in all averments of fraud, the
circumstances constituting it must be stated with particularity.50
[A]s the voluntary execution of a wrongful act or a wilful omission, while knowing and
intending the effects that naturally and necessarily arise from that act or omission. In
its general sense, fraud is deemed to comprise anything calculated to deceive —
including all acts and omission and concealment involving a breach of legal or equitable
duty, trust, or confidence justly reposed — resulting in damage to or in undue
advantage over another. Fraud is also described as embracing all multifarious means
that human ingenuity can device, and is resorted to for the purpose of securing an
advantage over another by false suggestions or by suppression of truth; and it includes
all surprise, trick, cunning, dissembling, and any other unfair way by which another is
cheated.51 (Citations omitted.)
By way of example, in Metro, Inc. v. Lara's Gifts and Decors, Inc.,52 we ruled that the
factual circumstances surrounding the parties' transaction clearly showed fraud. In this
case, the petitioners entered into an agreement with respondents where the
respondents agreed that they will endorse their purchase orders from their foreign
buyers to the petitioners in order to help the latter's export business. The petitioners
initially promised that they will transact only with the respondents and never directly
contact respondents' foreign buyers. To convince respondents that they should trust the
petitioners, petitioners even initially remitted shares to the respondents in accordance
with their agreement. However, as soon as there was a noticeable increase in the
volume of purchase orders from respondents' foreign buyers, petitioners abandoned
their contractual obligation to respondents and directly transacted with respondents'
foreign buyers. We found in this case that the respondents' allegation (that the
petitioners undertook to sell exclusively through respondents but then transacted
directly with respondents' foreign buyer) is sufficient allegation of fraud to support the
issuance of a writ of preliminary attachment.53
An examination of the Bitera Affidavit reveals that it failed to allege the existence of
fraud with sufficient specificity. The affidavit merely states that MIS refused to pay its
obligation because it demanded a set off between its obligation to Tsuneishi and
Tsuneishi's liability for MIS' losses caused by the delay in the turn-over of the vessel.
The affidavit insists that this demand for set off was not legally possible. Clearly, there
is nothing in the affidavit that even approximates any act of fraud which MIS committed
in the performance of its obligation. MIS' position was clear: Tsuneishi caused the
damage in the vessel's engine which delayed its trip and should thus be liable for its
losses. There is no showing that MIS performed any act to deceive or defraud
Tsuneishi.
In Watercraft Venture Corporation v. Wolfe,56 we ruled that an affidavit which does not
contain concrete and specific grounds showing fraud is inadequate to sustain the
issuance of the writ of preliminary attachment.57
The record shows that Tsuneishi released the vessel in September 2006. MIS signed the
Agreement of the Final Price only in November 2006. Thus, Tsuneishi's claim that MIS'
act of signing the document and making it believe that MIS will pay the amount stated
is the fraudulent act which induced it to release the vessel cannot stand. Tsuneishi
agreed to release the vessel even before MIS signed the document. It was thus not the
act which induced Tsuneishi to turn over the vessel.
Further, Tsuneishi is well aware of MIS' claims. It appears from the record, and as
admitted by MIS in its pleadings, that the reason for its refusal to pay is its claim that
its obligation should be set off against Tsuneishi's liability for the losses that MIS
incurred for the unwarranted delay in the turn-over of the vessel. MIS insists that
Tsuneishi is liable for the damage on the vessel. This is not an act of fraud. It is not an
intentional act or a willful omission calculated to deceive and injure Tsuneishi. MIS is
asserting a claim which it believes it has the right to do so under the law. Whether MIS'
position is legally tenable is a different matter. It is an issue fit for the court to decide.
Notably, MIS filed this as a counterclaim in the case pending before the RTC.58 Whether
MIS is legally correct should be threshed out there.
Even assuming that MIS is wrong in refusing to pay Tsuneishi, this is nevertheless not
the fraud contemplated in Section 1(d), Rule 57 of the Rules of Court. Civil law grants
Tsuneishi various remedies in the event that the trial court rules in its favor such as the
payment of the obligation, damages and legal interest. The issuance of a writ of
preliminary attachment is not one of those remedies.
There is a reason why a writ of preliminary attachment is available only in specific cases
enumerated under Section 1 of Rule 57. As it entails interfering with property prior to a
determination of actual liability, it is issued with great caution and only when warranted
by the circumstances. As we said in Ng Wee v. Tankiansee,59 the rules on the issuance
of the writ of preliminary attachment as a provisional remedy are strictly construed
against the applicant because it exposes the debtor to humiliation and annoyance.60
Moreover, we highlight that this petition for review on certiorari arose out of a Decision
of the CA in a Rule 65 petition. In cases like this, this Court's duty is only to ascertain
whether the CA was correct in ruling that the RTC acted with grave abuse of discretion
amounting to lack or excess of jurisdiction.
Jurisprudence has consistently held that a court that issues a writ of preliminary
attachment when the requisites are not present acts in excess of its
jurisdiction.61 In Philippine Bank of Communications v. Court of Appeals,62 we
highlighted:
Time and again, we have held that the rules on the issuance of a writ of attachment
must be construed strictly against the applicants. This stringency is required because
the remedy of attachment is harsh, extraordinary and summary in nature. If all the
requisites for the granting of the writ are not present, then the court which issues it
acts in excess of its jurisdiction.63 (Citation omitted.)
In accordance with consistent jurisprudence, we must thus affirm the ruling of the CA
that the RTC, in issuing a writ of preliminary attachment when the requisites under the
Rules of Court were clearly not present, acted with grave abuse of discretion.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the
Court of Appeals dated October 7, 2009 and its Resolution dated August 26, 2010
are AFFIRMED.
SO ORDERED.