rule 57 cases (originals)

8/13/2019 Rule 57 Cases (Originals)

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ADLAWAN vs. TOMOL, 184 SCRA 31

This is a special civil action for certiorari and mandamus seeking toannul : [a] the Order dated December 20, 1982 of respondent JudgeValeriano P. Tomol, Branch XI of CFI-Cebu, now Branch XI, RTC-Cebu, in Civil Case No. R-21761, entitled "Aboitiz and Company, Inc.v. Adlawan, et al" denying the motion of the defendant to require the

Provincial Sheriff of Cebu to deliver to him the properties seized bythe Sheriff of Davao City and [b] the Order dated September 4, 1982of Judge Ceferino F. Dulay, Branch XVI of the Court of First Instanceof Cebu, now Branch XXVII, RTC-Cebu, Lapu-Lapu City, in Civil CaseNo. 619-L between the same parties, denying for lack of meritpetitioner's Omnibus Motion to reconsider, dissolve and set aside theWrit of seizure and Replevin.

The antecedent facts are as follows:

Petitioner Eleazar A. Adlawan, a private contractor, was awarded by

the National Irrigation Administration (NIA) and the Bureau of PublicHighways (BPH) contracts for the construction of variousinfrastructure projects of the government to perform his obligationsthereunder, petitioner sought financial assistance and support fromprivate respondent Aboitiz and Company, Inc. For failure of petitionerto pay the installments and amortizations, private respondent filed onMay 13, 1982 before the Court of First Instance of Cebu acomplaint 1 for the collection of a sum of money and damagesincluding an ex-parte application for the issuance of a writ ofpreliminary attachment against the property of petitioner as defendanttherein. The Executive Judge without notice and hearing issued an

order2

on May 14, 1982 directing the issuance of a writ of preliminaryattachment against all the properties of petitioner, real and personal,upon the filing of an attachment bond for Four Million Pesos. Thecase, docketed as Civil Case No. R21761 was raffled and laterassigned to Branch XI of the Court of First Instance of Cebu, presidedby respondent Judge Valeriano P. Tomol. On May 26, 1982, writs ofpreliminary attachment were issued addressed to the Sheriffs ofCebu, Davao City, Quezon City, Davao del Sur and Davao del Norte,directing them to attach the real and personal properties of petitionerwithin their respective jurisdictions. On the strength of the writ ofpreliminary attachment, the bulk of petitioner's property in Davao City

was attached.

Subsequently, private respondent filed an Urgent Ex- parte Motions 3 asking the court that it be allowed to take possessionand custody of the attached properties to protect its interest and toavoid any damage or deterioration considering that the sheriff has noproper place to store or deposit said properties. This was granted byrespondent Judge on May 28, 1982 for being meritorious.

Meanwhile, petitioner before submitting an answer to the complaint,filed a Motion for a Bill of Particulars 4 and to Set Aside the Ex-Parte Writ of Preliminary Attachment 5 which was opposed by privaterespondent. Finding that the discharge of the writ of attachment isunavoidable on the ground that it was issued ex-parte, without noticeand hearing, based principally on the alleged removal or dispositionby the defendants of their properties with intent to defraud the plaintiff,which allegation was limited to a bare assertion and not persuasivelysubstantial, respondent Judge issued an Orders 6 dated July 6, 1982,the dispositive portion of which reads:

Accordingly, the Order of May 14, 1982 granting thewrit of preliminary attachment is lifted andvacated . Thewrits issued on 26 May 1982, are dissolved andrecalled and the properties levied and seized by theSheriffs of Cebu and Davao Cityare discharged and released .

SO ORDERED. (Emphasis supplied)

In view of the foregoing, private respondent Aboitiz and Company,Inc. filed an Urgent Ex-Parte Motion 7 dated July 7, 1982 praying for a

stay of the July 6, 1982 Order dissolving the writ of preliminaryattachment, thus maintaining the status quo. Private respondentfurther prayed for the court to direct the sheriff of Davao City to desistand/or stop the enforcement or implementation of the order lifting theattachment and to grant them fifteen (15) days to elevate the matter tothe Appellate Court. Consequently, respondent Judge Tomol issuedon the same day an Orders 8 granting the motion prayed for by privaterespondent Aboitiz and Company, Inc. Thus, the July 6, 1982 Orderwas stayed.

In the meantime, three (3) Deputy Sheriffs of Cebu implemented the

Order lifting the Writ of Attachment and were able to pull out somepersonal properties of petitioner Adlawan. They were not able to take


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out all the attached properties in view of the subsequent Order ofrespondent judge to stay its implementation.

As petitioner's Motion for a Bill of Particulars was not immediatelyacted upon, he was not able to file an answer or interpose anycounterclaim. For this reason, petitioner filed an Application for Awardof Damages dated July 9, 1982 asking for a reasonable rental on theattached heavy construction equipment, machineries and otherproperties at the rate of P30,000.00 per day from the date of seizureuntil said properties are actually returned to his possession andcontrol. 9

Before the court a quo could act on the motions of petitioner Adlawan,and before he could file an answer, his motion for a bill of particularsnot having been acted upon, private respondent Aboitiz andCompany, Inc., filed on July 13, 1982 a Notice of Dismissal orWithdrawal of Complaint 10 as a matter of right in accordance withSection 1, Rule 17 of the Rules of Court. Respondent Judge Tomol

issued an Order

11

dated July 15, 1982, the dispositive portion ofwhich reads:

Accordingly, the termination of this case upon thenotice of dismissal voluntarily filed by the plaintiff ishereby confirmed. For emphasis, all orders of thisCourt issued prior to the filing of said notice ofdismissal are each and all rendered functus officio. Bythe same token, all pending incidents, particularly thedefendant's motion for a bill of particulars and theirpetition for damages against the Plaintiffs attachment

bond, are now beyond the competence of this Court toconsider for being moot and academic.

SO ORDERED

Petitioner Adlawan filed a Motion 12 dated July 28, 1982 praying forthe issuance of an order to the Provincial Sheriff of Cebu to implementand enforce the Order of respondent Judge dated July 6, 1982dissolving the writ of preliminary attachment and to secure thedelivery of the attached properties to the petitioner. RespondentJudge issued an Order 13 dated December 20, 1982 denying the

Motion in view of the institution by private respondent Aboitiz andCompany, Inc. of a civil case (No. 619-L) for delivery of Personal

Properties with Replevin and Damages before the Court of FirstInstance of Cebu, Branch XVI in Lapu-Lapu City on July 13, 1982 andthe filing of petitioner Adlawan of a case for damages (Civil Case No.22265) before the Court of First Instance of Cebu, Branch X, inconnection with the seizure of his properties under the writ ofpreliminary attachment.

With regard to the replevin case filed by private respondent Aboitizand Company, Inc., the Court of First Instance of Cebu, Branch XVI,Lapu-Lapu City, issued an Order 14 for the seizure and delivery of theproperties described therein to the private respondent. The seizedproperties were thus delivered to private respondent by the Clerk ofCourt and Ex-officio Provincial Sheriff on July 24, 1982. Petitioner filedan Omnibus Motion 15 dated July 17, 1982 to reconsider, dissolve andset aside the Writ of Seizure and Replevin and to direct that theproperties seized be returned to petitioner as well as to dismiss thecomplaint. In support of this motion, petitioner alleged, among others,that private respondent's office is situated in Cebu City while petitioneris a resident of mainland Cebu, particularly Minglanilla therefore theCourt of First Instance of Cebu stationed in Lapu-Lapu should notaccept the case. Furthermore, he alleged that the same personalproperties seized are in custodia legis by virtue of a writ of preliminaryattachment issued by the Court of First Instance of Cebu, Branch XI,presided by respondent Judge Tomol. The Court of First Instance ofCebu, Branch XVI in Lapu-Lapu City, presided by Judge Ceferino E.Dulay denied the Omnibus Motion for lack of merit on September 4,1982. Petitioner Adlawan filed a Motion for Reconsideration but thesame was denied.

Hence, the present petition for certiorari and mandamus impleadingrespondent Judge Valeriano P. Tomol as Presiding Judge of BranchXI of the Court of First Instance of Cebu (now Branch XI, RTC-Cebu)and Branch XVI, CFI-Cebu presided by Judge Ceferino E. Dulay inLapu-Lapu City (now Branch XXVII of RTC Cebu in Lapu-Lapu) andprivate respondent Aboitiz and Company, Inc.

The issues raised by petitioner Adlawan are the following, to wit:

1) After the attachment of petitioner's properties wasdissolved and discharged because it was found by

respondent Judge to be wrongful and illegal, does it notconstitute grave and manifest abuse of discretion on


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the part of the same respondent judge TO REFUSE toimplement his own order for the return of the attachedproperties to petitioner simply because privaterespondent suddenly dismissed its complaint?

2) On the other hand, the court, after having deprivedpetitioner possession and enjoyment of his properties,by reason of an attachment which, subsequently, wasdissolved and discharged, was it not the clear, specificand inescapable duty of that same court, to order thatsaid properties be returned and restored to thepossession and enjoyment of petitioner?

3) Are not the attached properties of petitioner underthe custodia legis of the attaching court — Branch XI,CFI-Cebu (now Branch XI, RTC-Cebu) and, therefore,subject to its jurisdiction and control? If so, does it notconstitute grave and manifest abuse of discretion on

the part of the attaching court to literally wash his (sic )hands off any duty or responsibility by consideringhimself (sic ) as having been divested of authority todeal with such properties?

4) Did not the Lapu-Lapu Branch of CFI-Cebu act,without or in excess of his (sic ) jurisdiction or, at least,with grave abuse of discretion, in taking cognizance ofthe replevin case which involves properties already incustodia legis of Branch XI of CFI-Cebu?

5) On the other hand, was it not the clear, specific andinescapable duty of the Lapu-Lapu Branch of CFI-Cebu, to dismiss the replevin case and dissolve thewrit of replevin, not only because of the principle ofcustodia legis but also because it was in clear violationof Adm. Order No. 6 of this Honorable Supreme Court,which amends Adm. Orders No. 147 and 328 of theDepartment (now Ministry) of Justice? 16

From the recital of facts may be gleamed a series of peculiar eventsand circumstances requiring examination and looking into in order that

justice and equity may be subserved.

Petitioner's properties were attached on the strength of the writs ofpreliminary attachment issued without notice and hearing by theexecutive judge. These attached properties were given to the custodyof private respondent, Aboitiz and Company, Inc. Petitioner then fileda Motion to Dissolve the Writ of Attachment which was granted byrespondent Judge Tomol. Thus, petitioner was able to recover someof his properties. But on the following day, this order was stayed bythe same respondent judge leaving the rest of petitioner's propertieswith private respondent. Later, private respondent withdrew itscomplaint which was confirmed by respondent Judge Tomol.Petitioner Adlawan filed a motion to have the rest of his propertiesreturned but respondent judge refused to act on said motion due tocases filed by both parties in the different branches of the Court ofFirst Instance of Cebu relating to the same case.

After a careful examination of the records of the case We rule in favorof petitioner Adlawan.

There is no question that the order dated July 6, 1982 of respondentJudge Valeriano P. Tomol, Jr. lifting and vacating the order grantingthe writ of preliminary attachment is a valid order, issued while he had

jurisdiction over the case. The execution of aforesaid order of July 6,1982 was stayed for a period of fifteen (15) days on motion of theplaintiff to enable the latter to question the propriety or impropriety ofthe same in the appellate court. Instead, plaintiff filed a civil case fordelivery of Personal Properties with Replevin and Damages withanother branch of the CFI of Cebu. Accordingly, having failed toappeal or question the aforementioned order in the appellate court asoriginally manifested, the same became final and executory.

Section 1, Rule 39 of the Revised Rules of Court provides:

Execution upon final judgment or orders. — Executionshall issue upon a judgment or order that finallydisposes of the action or proceeding. Such executionshall issue as a matter of right upon the expiration ofthe period to appeal therefrom if no appeal has beenperfected.

It is basic that once a judgment becomes final, the prevailing party is

entitled as a matter of right to a Writ of Execution, and the issuancethereof is the Court's ministerial duty." 17


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But as earlier stated, the reasons advanced by respondent JudgeTomol for denying the enforcement of his order dated July 6, 1982which lifted the writ of attachment and the restoration of the seizedproperties to the defendant petitioner herein are: [a] the filing byprivate respondent of Civil Case No. 619-L with Branch XVI of CFI-Lapu-Lapu City for delivery of Personal Properties with Replevin andDamages which as a consequence, the same properties involved inthis case were seized under a writ of replevin upon order of aforesaidcourt and [b] the filing by petitioner of Civil Case No. 22265 beforeBranch X of the Court of First Instance of Cebu, for damages.

Hence, the issues in this case center on the nature and purpose of thewrit of attachment.

A writ of preliminary attachment is a provisional remedy issued uponorder of the court where an action is pending to be levied upon theproperty or properties of the defendant therein, the same to be heldthereafter by the Sheriff as security for the satisfaction of whatever

judgment might be secured in said action by the attaching creditoragainst the defendant. 18

The provisional remedy of attachment is available in order that thedefendant may not dispose of his property attached, and thus securethe satisfaction of any judgment that may be secured by plaintiff fromdefendant. 19The purpose and function of an attachment orgarnishment is two-fold. First, it seizes upon property of an allegeddebtor in advance of final judgment and holds it subject toappropriation thus prevents the loss or dissipation of the property byfraud or otherwise. Second, it subjects to the payment of a creditor's

claim property of the debtor in those cases where personal servicecannot be obtained upon the debtor. 20 This remedy is to secure acontingent lien on defendant's property until plaintiff can, byappropriate proceedings, obtain a judgment and have such propertyapplied to its satisfaction, or to make some provision for unsecureddebts in cases where the means of satisfaction thereof are liable to beremoved beyond the jurisdiction, or improperly disposed of orconcealed, or otherwise placed beyond the reach of creditors. 21

Attachment is an ancillary remedy. It is not sought for its own sake butrather to enable the attaching party to realize upon relief sought and

expected to be granted in the main or principal pal action.22

The remedy of attachment is adjunct to the main suit, therefore, it canhave no independent existence apart from a suit on a claim of theplaintiff against the defendant. In other words, a attachment orgarnishment is generally ancillary to, and dependent on, a principalproceeding, either at law or in equity, which has for its purpose adetermination of the justice of creditor's demand. 23

Thus, this Court ruled that upon levy by attachment of the property inquestion by order of the Court, said property fell into custodia legis ofthat court for purposes of that civil case only. Any relief against suchattachment and the execution an issuance of a writ of possession thatensued subsequently could be disposed of only in that case. 24

More specifically, it was held that courts have no jurisdiction to orderthe delivery of personal property (replevin) to the plaintiff if theproperty is under attachment. 25 Only courts having supervisorycontrol or superior jurisdiction in the premises, have the right tointerfere with and change possession of property in custodia legis. 26

More recently, this Court ruled that the garnishment of property tosatisfy a writ of execution operates as an attachment and fastensupon the property a lien by which the property is brought under the

jurisdiction of the court issuing the writ. It is brought into custodialegis under the sole control of such court. 27

During the life of the attachment, the attached property continues inthe custody of the law, the attaching officer being entitled to itspossession and liability for its safe keeping. 28

Based on the above-cited principles, it is obvious that the writ ofpreliminary attachment issued is already dissolved and rendered non-existent in view of the withdrawal of the complaint by Aboitiz andCompany, Inc. More importantly, even if the writ of attachment can beconsidered independently of the main case, the same, having beenimproperly issued as found by respondent Judge Tomol himself, isnull and void and cannot be a justification for holding petitioners'properties in custodia legis any longer.

To reiterate, an attachment is but an incident to a suit; and unless thesuit can be maintained, the attachment must fall.


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When Aboitiz and Company, Inc. withdrew its complaint, theattachment ceased to have a leg to stand on. The attached propertiesof petitioner Adlawan which are in the custody of private respondent

Aboitiz should be returned to petitioner. This is only proper andequitable and in consonance with the rules and principles of law. Theparties, by the withdrawal of the complaint, should be placed in thesame standing as they were before the filing of the same.

Petitioner also questions the jurisdiction of the CFI of Cebu stationedin Lapu-Lapu City to hear the replevin case filed by private respondentin view of the fact that petitioner is a resident of Minglanilla, Cebuwhile private respondent's principal place of business is in Cebu City.Obviously, the question posed by petitioner is venue.

A reading of the Omnibus Motion f iled by petitioner, then defendanttherein, would reveal that he not only questioned the jurisdiction of thecourt but likewise alleged non-jurisdictional grounds for dismissing thereplevin case, such as the amount of the bond put up by Aboitiz & Co.

as grossly insufficient and that the same properties are involved bothin the replevin case and in the original collection case with preliminaryattachment. Thus, in so doing, the court acquired jurisdiction over him.In the case of Wang Laboratories, Inc . vs. Mendoza 2 9 this Court held:

Even though the defendant objects to the jurisdiction ofthe court, if at the same time he alleges any non-

jurisdictional ground for dismissing the action, the courtacquires jurisdiction over him.

Furthermore, in the case of City of Cebu v . Consolacion, 30 We held

that:

. . . any of the branches of the Court of First Instance ofthe Province of Cebu, whether stationed in the city ofthe same name or in any of the municipalities of theprovince would be proper venue for its trial anddetermination, it being admitted that the parties areresidents of the Province of Cebu . . .

Finally, the employment by counsel for private respondent of dubiousprocedural maneuvers as what transpired in the case at bar obviously

to continue the wrongful and illegal possession and custody ofpetitioner's properties even after the dissolution of the attachment is to

say the least, hardly commendable if not a form of "forum shopping",to seek the court where he may possibly obtain favorable judgment. 31

It may therefore be stated that the right to come before the Courts toredress a grievance or right a wrong should be exercised withprudence and good faith. In the case of Indianapolis v . ChaseNational Bank, Trustee, 314 U.S. 69, it is opined that "Litigation is thepursuit of practical ends, not a game of chess."

WHEREFORE, in view of the foregoing, this Court rules that theattached properties left in the custody of private respondent Aboitizand Company, Inc. be returned to petitioner Eleazar V. Adlawanwithout prejudice to the outcome of the cases filed by both parties.

SO ORDERED.

DAVAO LIGHT & POWER CO. vs. CA, 204 SCRA 343

Subject of the appellate proceedings at bar is the decision of theCourt of Appeals in CA-G.R. Sp. No. 1967 entitled "QueenslandHotel, Inc ., etc . and Adarna v . Davao Light & Power Co., Inc .,"promulgated on May 4, 1990.1 That decision nullified and set asidethe writ of preliminary attachment issued by the Regional Trial Courtof Davao City 2 in Civil Case No. 19513-89 on application of theplaintiff (Davao Light & Power Co.), before the service of summons on

the defendants (herein respondents Queensland Co., Inc. and Adarna).

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

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


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2. On May 3, 1989 Judge Nartatez, to whose branch the case wasassigned by raffle, issued an Order granting theex parte applicationand fixing the attachment bond at P4,600,513.37.

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

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

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

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

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

This Order of September 19, 1989 was successfully challenged byQueensland and Adarna in a special civil action of certiorari institutedby them in the Court of Appeals. The Order was, as aforestated,annulled by the Court of Appeals in its Decision of May 4, 1990. The

Appellate Court's decision closed with the following disposition:

. . . the Orders dated May 3, 1989 granting theissuance of a writ of preliminary attachment, datedSeptember 19, 1989 denying the motion to dischargeattachment; dated November 7, 1989 denyingpetitioner's motion for reconsideration; as well as allother orders emanating therefrom, specially the Writ of

Attachment dated May 11, 1989 and Notice of Levy onPreliminary Attachment dated May 11, 1989, arehereby declared null and void and the attachment

hereby ordered DISCHARGED.

The Appellate Tribunal declared that —

. . . While it is true that a prayer for the issuance of awrit of preliminary attachment may be included m thecomplaint, as is usually done, it is likewise true that theCourt does not acquire jurisdiction over the person ofthe defendant until he is duly summoned or voluntarilyappears, and adding the phrase that it be issued "ex parte" does not confer said jurisdiction before actualsummons had been made, nor retroact jurisdictionupon summons being made. . . .

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

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

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

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

It is incorrect to theorize that after an action or proceeding has beencommenced and jurisdiction over the person of the plaintiff has beenvested in the court, but before the acquisition of jurisdiction over the person of the defendant (either by service of summons or hisvoluntary submission to the court's authority), nothing can be validlydone by the plaintiff or the court. It is wrong to assume that the validityof acts done during this period should be defendant on, or held insuspension until, the actual obtention of jurisdiction over thedefendant's person. The obtention by the court of jurisdiction over theperson of the defendant is one thing; quite another is the acquisition

of jurisdiction over the person of the plaintiff or over the subject-matteror nature of the action, or the res or object hereof.


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An action or proceeding is commenced by the filing of the complaintor other initiatory pleading. 4 By that act, the jurisdiction of the courtover the subject matter or nature of the action or proceeding isinvoked or called into activity; 5 and it is thus that the court acquires

jurisdiction over said subject matter or nature of the action. 6 And it isby that self-same act of the plaintiff (or petitioner) of filing thecomplaint (or other appropriate pleading) — by which he signifies hissubmission to the court's power and authority — that jurisdiction isacquired by the court over his person. 7 On the other hand,

jurisdiction over the person of the defendant is obtained, as abovestated, by the service of summons or other coercive process upon himor by his voluntary submission to the authority of the court. 8

The events that follow the filing of the complaint as a matter of routineare well known. After the complaint is filed, summons issues to thedefendant, the summons is then transmitted to the sheriff, and finally,service of the summons is effected on the defendant in any of theways authorized by the Rules of Court. There is thus ordinarily someappreciable interval of time between the day of the filing of thecomplaint and the day of service of summons of the defendant. Duringthis period, different acts may be done by the plaintiff or by the Court,which are unquestionable validity and propriety. Among these, forexample, are the appointment of a guardian ad litem, 9 the grant ofauthority to the plaintiff to prosecute the suit as a pauperlitigant, 10 the amendment of the complaint by the plaintiff as a matterof right without leave of court, 11 authorization by the Court of serviceof summons by publication, 12 the dismissal of the action by theplaintiff on mere notice. 13

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

A preliminary attachment may be defined, paraphrasing the Rules ofCourt, as the provisional remedy in virtue of which a plaintiff or otherparty may, at the commencement of the action or at any timethereafter, have the property of the adverse party taken into thecustody of the court as security for the satisfaction of any judgmentthat may be recovered. 15 It is a remedy which is purely statutory in

respect of which the law requires a strict construction of the provisionsgranting it. 16 Withal no principle, statutory or jurisprudential, prohibits

its issuance by any court before acquisition of jurisdiction over theperson of the defendant.

Rule 57 in fact speaks of the grant of the remedy "at thecommencement of the action or at any time thereafter." 17The phase,"at the commencement of the action," obviously refers to the date ofthe filing of the complaint — which, as above pointed out, is the datethat marks "the commencement of the action;" 18 and the referenceplainly is to a time before summons is served on the defendant, oreven before summons issues. What the rule is saying quite clearly isthat after an action is properly commenced — by the filing of thecomplaint and the payment of all requisite docket and other fees — the plaintiff may apply for and obtain a writ of preliminary attachmentupon fulfillment of the pertinent requisites laid down by law, and thathe may do so at any time, either before or after service of summonson the defendant. And this indeed, has been the immemorial practicesanctioned by the courts: for the plaintiff or other proper party toincorporate the application for attachment in the complaint or otherappropriate pleading (counter-claim, cross-claim, third-party claim)and for the Trial Court to issue the writ ex-parteat the commencementof the action if it finds the application otherwise sufficient in form andsubstance.

In Toledo v . Burgos, 19 this Court ruled that a hearing on a motion orapplication for preliminary attachment is not generally necessaryunless otherwise directed by the Trial Court in its discretion. 20 Andin Filinvest Credit Corporation v . Relova, 21 the Court declared that"(n)othing in the Rules of Court makes notice and hearingindispensable and mandatory requisites for the issuance of a writ of

attachment." The only pre-requisite is that the Court be satisfied, uponconsideration of "the affidavit of the applicant or of some other personwho personally knows the facts, that a sufficient cause of actionexists, that the case is one of those mentioned in Section 1 . . . (Rule57), that there is no other sufficient security for the claim sought to beenforced by the action, and that the amount due to the applicant, orthe value of the property the possession of which he is entitled torecover, is as much as the sum for which the order (of attachment) isgranted above all legal counterclaims." 22 If the court be so satisfied,the "order of attachment shall be granted," 23 and the writ shall issueupon the applicant's posting of "a bond executed to the adverse party

in an amount to be fixed by the judge, not exceeding the plaintiffsclaim, conditioned that the latter will pay all the costs which may be


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adjudged to the adverse party and all damages which he may sustainby reason of the attachment, if the court shall finally adjudge that theapplicant was not entitled thereto." 24

In Mindanao Savings & Loan Association, Inc . v . Court of Appeals, decided on April 18, 1989, 25 this Court had occasion toemphasize the postulate that no hearing is required on an applicationfor preliminary attachment, with notice to the defendant, for the reasonthat this "would defeat the objective of the remedy . . . (since the) timewhich such a hearing would take, could be enough to enable thedefendant to abscond or dispose of his property before a writ ofattachment issues." As observed by a former member of thisCourt, 26 such a procedure would warn absconding debtors-defendants of the commencement of the suit against them and theprobable seizure of their properties, and thus give them the advantageof time to hide their assets, leaving the creditor-plaintiff holding theproverbial empty bag; it would place the creditor-applicant in dangerof losing any security for a favorable judgment and thus give him onlyan illusory victory.

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

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

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

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

Sec. 12. Discharge of attachment upon givingcounterbond. — At any time after an order ofattachment has been granted, the party whoseproperty has been attached or the person appearing inhis behalf, may, upon reasonable notice to theapplicant, apply to the judge who granted the order, orto the judge of the court in which the action is pending,for an order discharging the attachment wholly or in

part on the security given . . . in an amount equal to thevalue of the property attached as determined by the

judge to secure the payment of any judgment that theattaching creditor may recover in the action. . . .

1.2. But even before actual levy on property, seizure underattachment may be prevented also upon counterbond. The defendantneed not wait until his property is seized before seeking the dischargeof the attachment by a counterbond. This is made possible by Section5 of Rule 57.

Sec. 5. Manner of attaching property . — The officerexecuting the order shall without delay attach, to await

judgment and execution in the action, all the propertiesof the party against whom the order is issued in theprovince, not exempt from execution, or so muchthereof as may be sufficient to satisfy the applicant'sdemand, unless the former makes a deposit with theclerk or judge of the court from which the order issued,or gives a counter-bond executed to the applicant, inan amount sufficient to satisfy such demand besidescosts, or in an amount equal to the value of the property which is about to be attached, to secure payment to the applicant of any judgment which hemay recover in the action. . . . (Emphasis supplied)

2.0. Aside from the filing of a counterbond, a preliminary attachmentmay also be lifted or discharged on the ground that it has beenirregularly or improperly issued, in accordance with Section 13 of Rule57. Like the first, this second mode of lifting an attachment may beresorted to even before any property has been levied on. Indeed, itmay be availed of after property has been released from a levy on

attachment, as is made clear by said Section 13, viz .:


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Sec. 13. Discharge of attachment for improper orirregular issuance. — The party whose property hasbeen attached may also, at any time either BEFORE or AFTER the release of the attached property, or beforeany attachment shall have been actually levied , uponreasonable notice to the attaching creditor, apply to the

judge who granted the order, or to the judge of thecourt in which the action is pending, for an order to

discharge the attachment on the ground that the samewas improperly or irregularly issued. If the motion bemade on affidavits on the part of the party whoseproperty has been attached, but not otherwise, theattaching creditor may oppose the same by counter-affidavits or other evidence in addition to that on whichthe attachment was made. . . . (Emphasis supplied)

This is so because "(a)s pointed out in Calderon v . I . A.C ., 155 SCRA531 (1987), The attachment debtor cannot be deemed to have waivedany defect in the issuance of the attachment writ by simply availinghimself of one way of discharging the attachment writ, instead of theother. Moreover, the filing of a counterbond is a speedier way ofdischarging the attachment writ maliciously sought out by theattaching creditor instead of the other way, which, in most instances . .. would require presentation of evidence in a fullblown trial on themerits, and cannot easily be settled in a pending incident of thecase." 27

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

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

. . . (W)hen the preliminary attachment is issued upon aground which is at the same time the applicant's causeof action; e.g., "an action for money or propertyembezzled or fraudulently misapplied or converted tohis own use by a public officer, or an officer of acorporation, or an attorney, factor, broker, agent, orclerk, in the course of his employment as such, or by

any other person in a fiduciary capacity, or for a willfulviolation of duty." (Sec. 1 [b], Rule 57), or "an action

against a party who has been guilty of fraud mcontracting the debt or incurring the obligation uponwhich the action is brought" (Sec. 1 [d], Rule 57), thedefendant is not allowed to file a motion to dissolve theattachment under Section 13 of Rule 57 by offering toshow the falsity of the factual averments in theplaintiff's application and affidavits on which the writwas based — and consequently that the writ based

thereon had been improperly or irregularly issued (SEEBenitez v. I.A.C., 154 SCRA 41) — the reason beingthat the hearing on such a motion for dissolution of thewrit would be tantamount to a trial of the merits of theaction. In other words, the merits of the action would beventilated at a mere hearing of a motion, instead of atthe regular trial. Therefore, when the writ of attachmentis of this nature, the only way it can be dissolved is bya counterbond (G.B. Inc. v. Sanchez, 98 Phil. 886).

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

. . . The dissolution of the preliminary attachment uponsecurity given, or a showing of its irregular or improperissuance, does not of course operate to discharge thesureties on plaintiff's own attachment bond. The reasonis simple. That bond is "executed to the adverse party,. . . conditioned that the . . . (applicant) will pay all thecosts which may be adjudged to the adverse party andall damages which he may sustain by reason of theattachment, if the court shall finally adjudge that theapplicant was not entitled thereto" (SEC. 4, Rule 57).Hence, until that determination is made, as to theapplicant's entitlement to the attachment, his bondmust stand and cannot be with-drawn.

With respect to the other provisional remedies, i .e., preliminaryinjunction (Rule 58), receivership (Rule 59), replevin or delivery ofpersonal property (Rule 60), the rule is the same: they may alsoissue ex parte. 29

It goes without saying that whatever be the acts done by the Courtprior to the acquisition of jurisdiction over the person of defendant, as


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above indicated — issuance of summons, order of attachment andwrit of attachment (and/or appointments of guardian ad litem, or grantof authority to the plaintiff to prosecute the suit as a pauper litigant, oramendment of the complaint by the plaintiff as a matter of rightwithout leave of court 30 — and however valid and proper they mightotherwise be, these do not and cannot bind and affect the defendantuntil and unless jurisdiction over his person is eventually obtained bythe 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 ofthe writ of attachment, it is essential that he serve on the defendantnot only a copy of the applicant's affidavit and attachment bond, andof the order of attachment, as explicity required by Section 5 of Rule57, but also the summons addressed to said defendant as well as acopy of the complaint and order for appointment of guardian adlitem, if any, as also explicity directed by Section 3, Rule 14 of theRules of Court. Service of all such documents is indispensable notonly for the acquisition of jurisdiction over the person of the defendant,but also upon considerations of fairness, to apprise the defendant of

the complaint against him, of the issuance of a writ of preliminaryattachment and the grounds therefor and thus accord him theopportunity to prevent attachment of his property by the posting of acounterbond in an amount equal to the plaintiff's claim in thecomplaint pursuant to Section 5 (or Section 12), Rule 57, or dissolvingit by causing dismissal of the complaint itself on any of the groundsset forth in Rule 16, or demonstrating the insufficiency of theapplicant's affidavit or bond in accordance with Section 13, Rule 57.

It was on account of the failure to comply with this fundamentalrequirement of service of summons and the other documents aboveindicated that writs of attachment issued by the Trial Court ex parte were struck down by this Court's Third Division in two (2) cases,namely: Sievert v . Court of Appeals, 31 and BAC Manufacturing andSales Corporation v . Court of Appeals, et al . 32 In contrast to the caseat bar — where the summons and a copy of the complaint, as well asthe order and writ of attachment and the attachment bond wereserved on the defendant — in Sievert , levy on attachment wasattempted notwithstanding that only the petition for issuance of thewrit of preliminary attachment was served on the defendant, withoutany prior or accompanying summons and copy of the complaint; andin BAC Manufacturing and Sales Corporation, neither the summonsnor the order granting the preliminary attachment or the writ of

attachment itself was served on the defendant "before or at the timethe levy was made."

For the guidance of all concerned, the Court reiterates and reaffirmsthe proposition that writs of attachment may properly issue ex parte provided that the Court is satisfied that the relevant requisitestherefor have been fulfilled by the applicant, although it may, in itsdiscretion, require prior hearing on the application with notice to thedefendant; but that levy on property pursuant to the writ thus issuedmay not be validly effected unless preceded, or contemporaneouslyaccompanied, by service on the defendant of summons, a copy of thecomplaint (and of the appointment of guardian ad litem, if any), theapplication for attachment (if not incorporated in but submittedseparately from the complaint), the order of attachment, and theplaintiff's attachment bond.

WHEREFORE, the petition is GRANTED; the challenged decision ofthe Court of Appeals is hereby REVERSED, and the order and writ ofattachment issued by Hon. Milagros C. Nartatez, Presiding Judge ofBranch 8, Regional Trial Court of Davao City in Civil Case No. 19513-89 against Queensland Hotel or Motel or Queensland Tourist Inn andTeodorico Adarna are hereby REINSTATED. Costs against privaterespondents.

SO ORDERED.

CHEMPHIL EXPORT & IMPORT CO. vs. CA, 251 SCRA 257

Before us is a legal tug-of-war between the Chemphil Export andImport Corporation (hereinafter referred to as CEIC), on one side, andthe PISO and Jaime Gonzales as assignee of the Bank of thePhilippine Islands (BPI), Rizal Commercial Banking Corporation(RCBC), Land Bank of the Philippines (LBP) and PhilippineCommercial International Bank (PCIB), on the other (hereinafterreferred to as the consortium), over 1,717,678 shares of stock(hereinafter referred to as the "disputed shares") in the ChemicalIndustries of the Philippines (Chemphil/CIP).


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Our task is to determine who is the rightful owner of the disputedshares.

Pursuant to our resolution dated 30 May 1994, the instant case is aconsolidation of two petitions for review filed before us as follows:

In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision ofthe Court of Appeals (former Twelfth Division) promulgated on 30June 1993 and its resolution of 29 October 1993, denying petitioner'smotion for reconsideration in the consolidated cases entitled"Dynetics, Inc., et al. v. PISO, et al." (CA-G.R. No. 20467) and"Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-Appellee" (CA-G.R. CV No. 26511).

The dispositive portion of the assailed decision reads, thus:

WHEREFORE, this Court resolves in theseconsolidated cases as follows:

1. The Orders of the Regional Trial Court, dated March25, 1988, and May 20, 1988, subject of CA-G.R. CVNo. 10467, are SET ASIDE and judgment is herebyrendered in favor of the consortium and againstappellee Dynetics, Inc., the amount of the judgment, tobe determined by Regional Trial Court, taking intoaccount the value of assets that the consortium mayhave already recovered and shall have recovered inaccordance with the other portions of this decision.

2. The Orders of the Regional Trial Court datedDecember 19, 1989 and March 5, 1990 are herebyREVERSED and SET ASIDE and judgment is herebyrendered confirming the ownership of the consortiumover the Chemphil shares of stock, subject of CA-G.R.CV No. 26511, and the Order dated September 4,1989, is reinstated.

No pronouncement as to costs.

SO ORDERED. 1

In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask forthe annulment of the Court of Appeals' decision (former Special NinthDivision) promulgated on 26 March 1993 in "PCIB v. Hon. Job B.Madayag & CEIC" (CA-G.R. SP NO. 20474) dismissing the petitionfor certiorari , prohibition and mandamus filed by PCIB and of saidcourt's resolution dated 11 January 1994 denying their motion forreconsideration of its decision. 2

The antecedent facts leading to the aforementioned controversies areas follows:

On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed acomplaint for declaratory relief and/or injunction against the PISO,BPI, LBP, PCIB and RCBC or the consortium with the Regional TrialCourt of Makati, Branch 45 (Civil Case No. 8527), seeking judicialdeclaration, construction and interpretation of the validity of the suretyagreement that Dynetics and Garcia had entered into with theconsortium and to perpetually enjoin the latter from claiming,collecting and enforcing any purported obligations which Dynetics andGarcia might have undertaken in said agreement. 3

The consortium filed their respective answers with counterclaimsalleging that the surety agreement in question was valid and bindingand that Dynetics and Garcia were liable under the terms of the saidagreement. It likewise applied for the issuance of a writ of preliminaryattachment against Dynetics and Garcia. 4

Seven months later, or on 23 April 1985, Dynetics, Antonio Garciaand Matrix Management & Trading Corporation filed a complaint for

declaratory relief and/or injunction against the Security Bank & TrustCo. (SBTC case) before the Regional Trial Court of Makati, Branch135 docketed as Civil Case No. 10398. 5

On 2 July 1985, the trial court granted SBTC's prayer for the issuanceof a writ of preliminary attachment and on 9 July 1985, a notice ofgarnishment covering Garcia's shares in CIP/Chemphil (including thedisputed shares) was served on Chemphil through its then President.The notice of garnishment was duly annotated in the stock andtransfer books of Chemphil on the same date. 6

On 6 September 1985, the writ of attachment in favor of SBTC waslifted. However, the same was reinstated on 30 October 1985. 7


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In the meantime, on 12 July 1985, the Regional Trial Court in CivilCase No. 8527 (the consortium case) denied the application ofDynetics and Garcia for preliminary injunction and instead granted theconsortium's prayer for a consolidated writ of preliminary attachment.Hence, on 19 July 1985, after the consortium had filed the requiredbond, a writ of attachment was issued and various real and personalproperties of Dynetics and Garcia were garnished, including thedisputed shares. 8 This garnishment, however, was not annotated in

Chemphil's stock and transfer book.

On 8 September 1987, PCIB filed a motion to dismiss the complaint ofDynetics and Garcia for lack of interest to prosecute and to submit itscounterclaims for decision, adopting the evidence it had adduced atthe hearing of its application for preliminary attachment. 9

On 25 March 1988, the Regional Trial Court dismissed the complaintof Dynetics and Garcia in Civil Case No. 8527, as well as thecounterclaims of the consortium, thus:

Resolving defendant's, Philippine CommercialInternational Bank, MOTION TO DISMISS WITHMOTION TO SUBMIT DEFENDANT PCIBANK'sCOUNTERCLAIM FOR DECISION, dated September7, 1987:

(1) The motion to dismiss is granted; and the instantcase is hereby ordered dismissed pursuant to Sec. 3,Rule 17 of the Revised Rules of Court, plaintiff havingfailed to comply with the order dated July 16, 1987, and

having not taken further steps to prosecute the case;and

(2) The motion to submit said defendant's counterclaimfor decision is denied; there is no need; saidcounterclaim is likewise dismissed under the authorityof Dalman vs. City Court of Dipolog City , L-63194,January 21, 1985, wherein the Supreme Court statedthat if the civil case is dismissed, so also is thecounterclaim filed therein. "A person cannot eat hiscake and have it at the same time" (p. 645, record, Vol.

I).10

The motions for reconsideration filed by the consortium were,likewise, denied by the trial court in its order dated 20 May 1988:

The Court could have stood pat on its order dated 25March 1988, in regard to which the defendants-banksconcerned filed motions for reconsideration. However,inasmuch as plaintiffs commented on said motionsthat: "3). In any event, so as not to unduly foreclose onthe rights of the respective parties to refile andprosecute their respective causes of action, plaintiffsmanifest their conformity to the modification of thisHonorable Court's order to indicate that the dismissalof the complaint and the counterclaims is withoutprejudice." (p. 2, plaintiffs' COMMENT etc. dated May20, 1988). The Court is inclined to so modify the saidorder.

WHEREFORE , the order issued on March 25, 1988, ishereby modified in the sense that the dismissal of thecomplaint as well as of the counterclaims of defendantsRCBC, LBP, PCIB and BPI shall be considered aswithout prejudice (p. 675, record, Vol. I). 11

Unsatisfied with the aforementioned order, the consortium appealedto the Court of Appeals, docketed as CA-G.R. CV No. 20467.

On 17 January 1989 during the pendency of consortium's appeal inCA-G.R. CV No. 20467, Antonio Garcia and the consortium enteredinto a Compromise Agreement which the Court of Appeals approved

on 22 May 1989 and became the basis of its judgment bycompromise. Antonio Garcia was dropped as a party to the appealleaving the consortium to proceed solely against Dynetics, Inc. 12 On27 June 1989, entry of judgment was made by the Clerk of Court. 13

Hereunder quoted are the salient portions of said compromiseagreement:

xxx xxx xxx

3. Defendants, in consideration of avoiding an

extended litigation, having agreed to limit their claim


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against plaintiff Antonio M. Garcia to a principal sum ofP145 Million immediately demandable and to waive allother claims to interest, penalties, attorney's fees andother charges. The aforesaid compromise amount ofindebtedness of P145 Million shall earn interest ofeighteen percent (18%) from the date of thisCompromise.

4. Plaintiff Antonio M. Garcia and herein defendantshave no further claims against each other.

5. This Compromise shall be without prejudice to suchclaims as the parties herein may have against plaintiffDynetics, Inc.

6. Plaintiff Antonio M. Garcia shall have two (2) monthsfrom date of this Compromise within which to work forthe entry and participation of his other creditor, Security

Bank and Trust Co., into this Compromise. Upon theexpiration of this period, without Security Bank andTrust Co. having joined, this Compromise shall besubmitted to the Court for its information and approval(pp. 27, 28-31, rollo, CA-G.R. CV No. 10467). 14

It appears that on 15 July 1988, Antonio Garcia under a Deed of Saletransferred to Ferro Chemicals, Inc. (FCI) the disputed shares andother properties for P79,207,331.28. It was agreed upon that part ofthe purchase price shall be paid by FCI directly to SBTC for whatever

judgment credits that may be adjudged in the latter's favor and

against Antonio Garcia in the aforementioned SBTC case.

15

On 6 March 1989, FCI, through its President Antonio M. Garcia,issued a Bank of America Check No. 860114 in favor of SBTC in theamount of P35,462,869.62. 16 SBTC refused to accept the checkclaiming that the amount was not sufficient to discharge the debt. Thecheck was thus consigned by Antonio Garcia and Dynetics with theRegional Trial Court as payment of their judgment debt in the SBTCcase. 17

On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil,

which included the disputed shares, to petitioner CEIC. The shareswere registered and recorded in the corporate books of Chemphil in

CEIC's name and the corresponding stock certificates were issued toit. 18

Meanwhile, Antonio Garcia, in the consortium case, failed to complywith the terms of the compromise agreement he entered into with theconsortium on 17 January 1989. As a result, on 18 July 1989, theconsortium filed a motion for execution which was granted by the trialcourt on 11 August 1989. Among Garcia's properties that were leviedupon on execution were his 1,717,678 shares in Chemphil (thedisputed shares) previously garnished on 19 July 1985. 19

On 22 August 1989, the consortium acquired the disputed shares ofstock at the public auction sale conducted by the sheriff forP85,000,000.00. 20 On same day, a Certificate of Sale covering thedisputed shares was issued to it.

On 30 August 1989, 21 the consortium filed a motion (dated 29 August1989) to order the corporate secretary of Chemphil to enter in its stock

and transfer books the sheriff's certificate of sale dated 22 August1989, and to issue new certificates of stock in the name of the banksconcerned. The trial court granted said motion in its order dated 4September 1989, thus:

For being legally proper, defendant's MOTION TOORDER THE CORPORATE SECRETARY OFCHEMICAL INDUSTRIES OF THE PHILS., INC.(CHEMPIL) TO ENTER IN THE STOCK ANDTRANSFER BOOKS OF CHEMPHIL THE SHERIFF'SCERTIFICATE OF SALE DATED AUGUST 22, 1989

AND TO ISSUE NEW CERTIFICATES OF STOCK INTHE NAME OF THE DEFENDANT BANKS, dated August 29, 1989, is hereby granted.

WHEREFORE, the corporate secretary of the aforesaidcorporation, or whoever is acting for and in his behalf,is hereby ordered to (1) record and/or register theCertificate of Sale dated August 22, 1989 issued byDeputy Sheriff Cristobal S. Jabson of this Court; (2) tocancel the certificates of stock of plaintiff Antonio M.Garcia and all those which may have subsequently

been issued in replacement and/or in substitutionthereof; and (3) to issue in lieu of the said shares new


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shares of stock in the name of the defendant Banks,namely, PCIB, BPI, RCBC, LBP and PISO bank insuch proportion as their respective claims wouldappear in this suit (p. 82, record, Vol. II). 22

On 26 September 1989, CEIC filed a motion to intervene (dated 25September 1989) in the consortium case seeking the recall of theabovementioned order on grounds that it is the rightful owner of thedisputed shares. 23 It further alleged that the disputed shares werepreviously owned by Antonio M. Garcia but subsequently sold by himon 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn assignedthe same to CEIC in an agreement dated 26 June 1989.

On 27 September 1989, the trial court granted CEIC's motion allowingit to intervene, but limited only to the incidents covered by the orderdated 4 September 1989. In the same order, the trial court directedChemphil's corporate secretary to temporarily refrain fromimplementing the 4 September 1989order. 24

On 2 October 1989, the consortium filed their opposition to CEIC'smotion for intervention alleging that their attachment lien over thedisputed shares of stocks must prevail over the private sale in favor ofthe CEIC considering that said shares of stock were garnished in theconsortium's favor as early as 19 July 1985. 25

On 4 October 1989, the consortium filed their opposition to CEIC'smotion to set aside the 4 September 1989 order and moved to lift the27 September 1989 order. 26

On 12 October 1989, the consortium filed a manifestation and motionto lift the 27 September 1989 order, to reinstate the 4 September1989 order and to direct CEIC to surrender the disputed stockcertificates of Chemphil in its possession within twenty-four (24)hours, failing in which the President, Corporate Secretary and stockand transfer agent of Chemphil be directed to register the names ofthe banks making up the consortium as owners of said shares, signthe new certificates of stocks evidencing their ownership over saidshares and to immediately deliver the stock certificates to them. 27

Resolving the foregoing motions, the trial court rendered an orderdated 19 December 1989, the dispositive portion of which reads asfollows:

WHEREFORE, premises considered, the UrgentMotion dated September 25, 1989 filed by CEIC ishereby GRANTED. Accordingly, the Order ofSeptember 4, 1989, is hereby SET ASIDE, and anyand all acts of the Corporate Secretary of CHEMPHILand/or whoever is acting for and in his behalf, as mayhave already been done, carried out or implementedpursuant to the Order of September 4, 1989, arehereby nullified.

PERFORCE, the CONSORTIUM'S Motions datedOctober 3, 1989 and October 11, 1989, are bothhereby denied for lack of merit.

The Cease and Desist Order dated September 27,1989, is hereby AFFIRMED and made PERMANENT.

SO ORDERED. 28

In so ruling, the trial court ratiocinated in this wise:

xxx xxx xxx

After careful and assiduous consideration of the factsand applicable law and jurisprudence, the Court holds

that CEIC's Urgent Motion to Set Aside the Order ofSeptember 4, 1989 is impressed with merit. TheCONSORTIUM has admitted that the writ ofattachment/garnishment issued on July 19, 1985 onthe shares of stock belonging to plaintiff Antonio M.Garcia was not annotated and registered in the stockand transfer books of CHEMPHIL. On the other hand,the prior attachment issued in favor of SBTC on July 2,1985 by Branch 135 of this Court in Civil Case No.10398, against the same CHEMPHIL shares of AntonioM. Garcia, was duly registered and annotated in the

stock and transfer books of CHEMPHIL. The matter of


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non-recording of the Consortium's attachment inChemphil's stock and transfer book on the shares of

Antonio M. Garcia assumes significance consideringCEIC's position that FCI and later CEIC acquired theCHEMPHIL shares of Antonio M. Garcia withoutknowledge of the attachment of the CONSORTIUM.This is also important as CEIC claims that it has beensubrogated to the rights of SBTC since CEIC's

predecessor-in-interest, the FCI, had paid SBTC theamount of P35,462,869.12 pursuant to the Deed ofSale and Purchase of Shares of Stock executed by

Antonio M. Garcia on July 15, 1988. By reason of suchpayment, sale with the knowledge and consent of

Antonio M. Garcia, FCI and CEIC, as party-in-interestto FCI, are subrogated by operation of law to the rightsof SBTC. The Court is not unaware of the citation inCEIC's reply that "as between two (2) attachingcreditors, the one whose claims was first registered onthe books of the corporation enjoy priority." (Samahang

Magsasaka, Inc. vs. Chua Gan, 96 Phil. 974.)

The Court holds that a levy on the shares of corporatestock to be valid and binding on third persons, thenotice of attachment or garnishment must be registeredand annotated in the stock and transfer books of thecorporation, more so when the shares of thecorporation are listed and traded in the stockexchange, as in this case. As a matter of fact, in theCONSORTIUM's motion of August 30, 1989, theyspecifically move to "order the Corporate Secretary ofCHEMPHIL to enter in the stock and transfer books ofCHEMPHIL the Sheriff's Certificate of Sale dated

August 22, 1989." This goes to show that, contrary tothe arguments of the CONSORTIUM, in order thatattachment, garnishment and/or encumbrancesaffecting rights and ownership on shares of acorporation to be valid and binding, the same has to berecorded in the stock and transfer books.

Since neither CEIC nor FCI had notice of theCONSORTIUM's attachment of July 19, 1985, CEIC'sshares of stock in CHEMPHIL, legally acquired from

Antonio M. Garcia, cannot be levied upon in executionto satisfy his judgment debts. At the time of theSheriff's levy on execution, Antonio M. Garcia has nomore in CHEMPHIL which could be levied upon. 29

xxx xxx xxx

On 23 January 1990, the consortium and PCIB filed separate motionsfor reconsideration of the aforestated order which were opposed bypetitionerCEIC. 30

On 5 March 1990, the trial court denied the motions forreconsideration. 31

On 16 March 1990, the consortium appealed to the Court of Appeals(CA-G.R. No. 26511). In its Resolution dated 9 August 1990, theCourt of Appeals consolidated CA-G.R. No. 26511 with CA-G.R. No.

20467.

32

The issues raised in the two cases, as formulated by the Court of Appeals, are as follows:

I

WHETHER OR NOT, UNDER THE PECULIARCIRCUMSTANCES OF THE CASE, THE TRIALCOURT ERRED IN DISMISSING THECOUNTERCLAIMS OF THE CONSORTIUM IN CIVIL

CASE NO. 8527;

II

WHETHER OR NOT THE DISMISSAL OF CIVILCASE NO. 8527 RESULTED IN THE DISCHARGE OFTHE WRIT OF ATTACHMENT ISSUED THEREINEVEN AS THE CONSORTIUM APPEALED THEORDER DISMISSING CIVIL CASE NO. 8527;

III


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WHETHER OR NOT THE JUDGMENT BASED ONCOMPROMISE RENDERED BY THIS COURT ONMAY 22, 1989 HAD THE EFFECT OF DISCHARGINGTHE ATTACHMENTS ISSUED IN CIVIL CASE NO.8527;

IV

WHETHER OR NOT THE ATTACHMENT OFSHARES OF STOCK, IN ORDER TO BIND THIRDPERSONS, MUST BE RECORDED IN THE STOCK

AND TRANSFER BOOK OF THE CORPORATION; AND

V

WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITS SUCCESSOR-IN-INTEREST, CEIC, WERE

SUBROGATED TO THE RIGHTS OF SECURITYBANK & TRUST COMPANY (SBTC) IN A SEPARATECIVIL ACTION. (This issue appears to be material asSBTC is alleged to have obtained an earlier attachmentover the same Chemphil shares that the consortiumseeks to recover in the case at bar). 33

On 6 April 1990, the PCIB separately filed with the Court of Appeals apetition for certiorari , prohibition andmandamus with a prayer for theissuance of a writ of preliminary injunction (CA-G.R. No. SP-20474),likewise, assailing the very same orders dated 19 December 1989

and 5 March 1990, subject of CA-G.R. No. 26511. 34

On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R.No. 26511 and CA-G.R. No. 20467 rendered a decision reversing theorders of the trial court and confirming the ownership of theconsortium over the disputed shares. CEIC's motion forreconsideration was denied on 29 October 1993. 35

In ruling for the consortium, the Court of Appeals made the followingratiocination: 36

On the first issue, it ruled that the evidence offered bythe consortium in support of its counterclaims, coupledwith the failure of Dynetics and Garcia to prosecutetheir case, was sufficient basis for the RTC to passupon and determine the consortium's counterclaims.

The Court of Appeals found no application for the rulingin Dalman v . City Court of Dipolog , 134 SCRA 243

(1985) that "a person cannot eat his cake and have it atthe same time. If the civil case is dismissed, so also isthe counterclaim filed therein" because the factualbackground of the present action is different. In theinstant case, both Dynetics and Garcia and theconsortium presented testimonial and documentaryevidence which clearly should have supported a

judgment on the merits in favor of the consortium. Asthe consortium correctly argued, the net atrociouseffect of the Regional Trial Court's ruling is that itallows a situation where a party litigant is forced to

plead and prove compulsory counterclaims only to bedenied those counterclaims on account of the adverseparty's failure to prosecute his case. Verily, theconsortium had no alternative but to present itscounterclaims in Civil Case No. 8527 since itscounterclaims are compulsory in nature.

On the second issue, the Court of Appeals opined thatunless a writ of attachment is lifted by a special orderspecifically providing for the discharge thereof, orunless a case has been finally dismissed against theparty in whose favor the attachment has been issued,the attachment lien subsists. When the consortium,therefore, took an appeal from the Regional TrialCourt's orders of March 25, 1988 and May 20, 1988,such appeal had the effect of preserving theconsortium's attachment liens secured at the inceptionof Civil Case No. 8527, invoking the rule in Olibv . Pastoral,188 SCRA 692 (1988) that where the mainaction is appealed, the attachment issued in the saidmain case is also considered appealed.


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Anent the third issue, the compromise agreementbetween the consortium and Garcia dated 17 January1989 did not result in the abandonment of itsattachment lien over his properties. Said agreementwas approved by the Court of Appeals in a Resolutiondated 22 May 1989. The judgment based on thecompromise agreement had the effect of preservingthe said attachment lien as security for the satisfaction

of said judgment (citing BF Homes, Inc. v. CA, 190SCRA 262, [1990]).

As to the fourth issue, the Court of Appeals agreed withthe consortium's position that the attachment of sharesof stock in a corporation need not be recorded in thecorporation's stock and transfer book in order to bindthird persons.

Section 7(d), Rule 57 of the Rules of Court wascomplied with by the consortium (through the Sheriff ofthe trial court) when the notice of garnishment over theChemphil shares of Garcia was served on thepresident of Chemphil on July 19, 1985. Indeed, to bindthird persons, no law requires that an attachment ofshares of stock be recorded in the stock and transferbook of a corporation. The statement attributed by theRegional Trial Court to the Supreme Courtin Samahang Magsasaka, Inc .vs. Gonzalo Chua Guan,G.R. No. L-7252, February 25, 1955 (unreported), tothe effect that "as between two attaching creditors, theone whose claim was registered first on the books ofthe corporation enjoys priority," is an obiter dictum thatdoes not modify the procedure laid down in Section7(d), Rule 57 of the Rules of Court.

Therefore, ruled the Court of Appeals, the attachmentmade over the Chemphil shares in the name of Garciaon July 19, 1985 was made in accordance with law andthe lien created thereby remained valid and subsistingat the time Garcia sold those shares to FCI(predecessor-in-interest of appellee CEIC) in 1988.

Anent the last issue, the Court of Appeals rejectedCEIC's subrogation theory based on Art. 1302 (2) ofthe New Civil Code stating that the obligation to SBTCwas paid by Garcia himself and not by a third party(FCI).

The Court of Appeals further opined that while thecheck used to pay SBTC was a FCI corporate check, it

was funds of Garcia in FCI that was used to pay offSBTC. That the funds used to pay off SBTC werefunds of Garcia has not been refuted by FCI or CEIC. Itis clear, therefore, that there was an attempt on thepart of Garcia to use FCI and CEIC as convenientvehicles to deny the consortium its right to make itselfwhole through an execution sale of the Chemphilshares attached by the consortium at the inception ofCivil Case No. 8527. The consortium, therefore, isentitled to the issuance of the Chemphil shares of stockin its favor. The Regional Trial Court's order of

September 4, 1989, should, therefore, be reinstated intoto.

Accordingly, the question of whether or not theattachment lien in favor of SBTC in the SBTC case issuperior to the attachment lien in favor of theconsortium in Civil Case No. 8527 becomes immaterialwith respect to the right of intervenor-appellee CEIC.The said issue would have been relevant had CEICestablished its subrogation to the rights of SBTC.

On 26 March 1993, the Court of Appeals (Special Ninth Division) inCA-G.R. No. SP 20474 rendered a decision denying due course toand dismissing PCIB's petition for certiorari on grounds that PCIBviolated the rule against forum-shopping and that no grave abuse ofdiscretion was committed by respondent Regional Trial Court inissuing its assailed orders dated 19 December 1989 and 5 March1990. PCIB's motion for reconsideration was denied on 11 January1994. 37

On 7 July 1993, the consortium, with the exception of PISO, assigned

without recourse all its rights and interests in the disputed shares toJaime Gonzales. 38


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On 3 January 1994, CEIC filed the instant petition for review docketedas G.R. Nos. 112438-39 and assigned the following errors:

I.

THE RESPONDENT COURT OF APPEALSGRAVELY ERRED IN SETTING ASIDE ANDREVERSING THE ORDERS OF THE REGIONALTRIAL COURT DATED DECEMBER 5, 1989 ANDMARCH 5, 1990 AND IN NOT CONFIRMINGPETITIONER'S OWNERSHIP OVER THE DISPUTEDCHEMPHIL SHARES AGAINST THE FRIVOLOUS

AND UNFOUNDED CLAIMS OF THE CONSORTIUM.

II.

THE RESPONDENT COURT OF APPEALSGRAVELY ERRED:

(1) In not holding that the Consortium'sattachment over the disputed Chemphilshares did not vest any priority right inits favor and cannot bind third partiessince admittedly its attachment on 19July 1985 was not recorded in the stockand transfer books of Chemphil, andsubordinate to the attachment of SBTCwhich SBTC registered and annotated inthe stock and transfer books of

Chemphil on 2 July 1985, and that theConsortium's attachment failed tocomply with Sec. 7(d), Rule 57 of theRules as evidenced by the notice ofgarnishment of the deputy sheriff of thetrial court dated 19 July 1985 (annex"D") which the sheriff served on acertain Thelly Ruiz who was neitherPresident nor managing agent ofChemphil;

(2) In not applying the case lawenunciated by this Honorable Supreme

Court inSamahang Magsasaka,Inc . vs. Gonzalo Chua Guan, 96 Phil.974 that as between two attachingcreditors, the one whose claim wasregistered first in the books of thecorporation enjoys priority, and whichrespondent Court erroneouslycharacterized as mere obiter dictum;

(3) In not holding that the dismissal ofthe appeal of the Consortium from theorder of the trial court dismissing itscounterclaim against Antonio M. Garciaand the finality of the compromiseagreement which ended the litigationbetween the Consortium and Antonio M.Garcia in the Dyneticscase had ipso jure discharged theConsortium's purported attachment over

the disputed shares.

III.

THE RESPONDENT COURT OF APPEALSGRAVELY ERRED IN NOT HOLDING THAT CEICHAD BEEN SUBROGATED TO THE RIGHTS OFSBTC SINCE CEIC'S PREDECESSOR IN INTERESTHAD PAID SBTC PURSUANT TO THE DEED OFSALE AND PURCHASE OF STOCK EXECUTED BY

ANTONIO M. GARCIA ON JULY 15, 1988, AND THATBY REASON OF SUCH PAYMENT, WITH THECONSENT AND KNOWLEDGE OF ANTONIO M.GARCIA, FCI AND CEIC, AS PARTY IN INTERESTTO FCI, WERE SUBROGATED BY OPERATION OFLAW TO THE RIGHTS OF SBTC.

IV.

THE RESPONDENT COURT OF APPEALSGRAVELY ERRED AND MADE UNWARRANTED

INFERENCES AND CONCLUSIONS, WITHOUT ANYSUPPORTING EVIDENCE, THAT THERE WAS AN


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ATTEMPT ON THE PART OF ANTONIO M. GARCIATO USE FCI AND CEIC AS CONVENIENT VEHICLESTO DENY THE CONSORTIUM ITS RIGHTS TO MAKEITSELF WHOLE THROUGH AN EXECUTION OF THECHEMPHIL SHARES PURPORTEDLY ATTACHEDBY THE CONSORTIUM ON 19 JULY 1985. 39

On 2 March 1994, PCIB filed its own petition for review docketed as

G.R. No. 113394 wherein it raised the following issues:

I. RESPONDENT COURT OF APPEALS COMMITTEDSERIOUS ERROR IN RENDERING THE DECISION

AND RESOLUTION IN QUESTION (ANNEXES A ANDB) IN DEFIANCE OF LAW AND JURISPRUDENCE BYFINDING RESPONDENT CEIC AS HAVING BEENSUBROGATED TO THE RIGHTS OF SBTC BY THEPAYMENT BY FCI OF GARCIA'S DEBTS TO THELATTER DESPITE THE FACT THAT —

A. FCI PAID THE SBTC DEBT BYVIRTUE OF A CONTRACT BETWEENFCI AND GARCIA, THUS, LEGALSUBROGATION DOES NOT ARISE;

B. THE SBTC DEBT WAS PAID BYGARCIA HIMSELF AND NOT BY FCI,HENCE, SUBROGATION BYPAYMENT COULD NOT HAVEOCCURRED;

C. FCI DID NOT ACQUIRE ANY RIGHTOVER THE DISPUTED SHARES ASSBTC HAD NOT YET LEVIED UPONNOR BOUGHT THOSE SHARES ONEXECUTION. ACCORDINGLY, WHATFCI ACQUIRED FROM SBTC WASSIMPLY A JUDGMENT CREDIT AND

AN ATTACHMENT LIEN TO SECUREITS SATISFACTION.

II. RESPONDENT COURT OF APPEALSCOMMITTED SERIOUS ERROR IN SUSTAINING

THE ORDERS OF THE TRIAL COURT DATEDDECEMBER 19, 1989 AND MARCH 5, 1990 WHICHDENIED PETITIONER'S OWNERSHIP OVER THEDISPUTED SHARES NOTWITHSTANDINGPROVISIONS OF LAW AND EXTANTJURISPRUDENCE ON THE MATTER THATPETITIONER AND THE CONSORTIUM HAVEPREFERRED SENIOR RIGHTS THEREOVER.

III. RESPONDENT COURT OF APPEAL COMMITTEDSERIOUS ERROR IN CONCLUDING THAT THEDISMISSAL OF THE COMPLAINT AND THECOUNTERCLAIM IN CIVIL CASE NO. 8527 ALSORESULTED IN THE DISCHARGE OF THE WRIT OF

ATTACHMENT DESPITE THE RULINGS OF THISHONORABLE COURT IN BF HOMES VS. COURT OF APPEALS, G.R. NOS. 76879 AND 77143, OCTOBER3, 1990, 190 SCRA 262, AND IN OLIBVS. PASTORAL, G.R. NO. 81120, AUGUST 20, 1990,

188 SCRA 692 TO THE CONTRARY.

IV. RESPONDENT COURT OF APPEALSEXCEEDED ITS JURISDICTION IN RULING ON THEMERITS OF THE MAIN CASE NOTWITHSTANDINGTHAT THOSE MATTERS WERE NOT ON APPEALBEFORE IT.

V. RESPONDENT COURT OF APPEALSCOMMITTED SERIOUS ERROR IN HOLDING THATPETITIONER IS GUILTY OF FORUM SHOPPINGDESPITE THE FACT THAT SC CIRCULAR NO. 28-91WAS NOT YET IN FORCE AND EFFECT AT THETIME THE PETITION WAS FILED BEFORERESPONDENT APPELLATE COURT, AND THAT ITSCOUNSEL AT THAT TIME HAD ADEQUATE BASISTO BELIEVE THATCERTIORARI AND NOT AN

APPEAL OF THE TRIAL COURT'S ORDERS WASTHE APPROPRIATE RELIEF.40

As previously stated, the issue boils down to who is legally entitled to

the disputed shares of Chemphil. We shall resolve this controversy by


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examining the validity of the claims of each party and, thus, determinewhose claim has priority.

CEIC's claim

CEIC traces its claim over the disputed shares to the attachment lienobtained by SBTC on 2 July 1985 against Antonio Garcia in CivilCase No. 10398. It avers that when FCI, CEIC's predecessor-in-interest, paid SBTC the due obligations of Garcia to the said bankpursuant to the Deed of Absolute Sale and Purchase of Shares ofStock, 41FCI, and later CEIC, was subrogated to the rights of SBTC,particularly to the latter's aforementioned attachment lien over thedisputed shares.

CEIC argues that SBTC's attachment lien is superior as it wasobtained on 2 July 1985, ahead of the consortium's purportedattachment on 19 July 1985. More importantly, said CEIC lien wasduly recorded in the stock and transfer books of Chemphil.

CEIC's subrogation theory is unavailing.

By definition, subrogation is "the transfer of all the rights of thecreditor to a third person, who substitutes him in all his rights. It mayeither be legal or conventional. Legal subrogation is that which takesplace without agreement but by operation of law because of certainacts; this is the subrogation referred to in article 1302. Conventionalsubrogation is that which takes place by agreement of the parties . .." 42

CEIC's theory is premised on Art. 1302 (2) of the Civil Code whichstates:

Art. 1302. It is presumed that there is legalsubrogation:

(1) When a creditor pays another creditor who ispreferred, even without the debtor's knowledge;

(2) When a third person, not interested in theobligation, pays with the express or tacit approval of

the debtor ;

(3) When, even without the knowledge of the debtor, aperson interested in the fulfillment of the obligationpays, without prejudice to the effects of confusion as tothe latter's share. (Emphasis ours.)

Despite, however, its multitudinous arguments, CEIC presents anerroneous interpretation of the concept of subrogation. An analysis ofthe situations involved would reveal the clear inapplicability of Art.

1302 (2).

Antonio Garcia sold the disputed shares to FCI for a consideration ofP79,207,331.28. FCI, however, did not pay the entire amount toGarcia as it was obligated to deliver part of the purchase price directlyto SBTC pursuant to the following stipulation in the Deed of Sale:

Manner of Payment

Payment of the Purchase Price shall be made in

accordance with the following order of preferenceprovided that in no instance shall the totalamount paid by the Buyer exceed the Purchase Price:

a. Buyer shall pay directly to the Security Bank andTrust Co. the amount determined by the SupremeCourt as due and owing in favor of the said bank by theSeller .

The foregoing amount shall be paid within fifteen (15)days from the date the decision of the Supreme Court

in the case entitled "Antonio M. Garcia, et al. vs. Courtof Appeals, et al." G.R. Nos. 82282-83 becomes finaland executory. 43 (Emphasis ours.)

Hence, when FCI issued the BA check to SBTC in the amount ofP35,462,869.62 to pay Garcia's indebtedness to the said bank, it wasin effect paying with Garcia's money, no longer with its own, becausesaid amount was part of the purchase price which FCI owed Garcia inpayment for the sale of the disputed shares by the latter to the former.The money "paid" by FCI to SBTC, thus properly belonged to Garcia.It is as if Garcia himself paid his own debt to SBTC but through a third

party — FCI.


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It is, therefore, of no consequence that what was used to pay SBTCwas a corporate check of FCI. As we have earlier stated, said checkno longer represented FCI funds but Garcia's money, being as it waspart of FCI's payment for the acquisition of the disputed shares. TheFCI check should not be taken at face value, the attendantcircumstances must also be considered.

The aforequoted contractual stipulation in the Deed of Sale dated 15

July 1988 between Antonio Garcia and FCI is nothing more but anarrangement for the sake of convenience. Payment was to be effectedin the aforesaid manner so as to prevent money from changing handsneedlessly. Besides, the very purpose of Garcia in selling the disputedshares and his other properties was to "settle certain civil suits filedagainst him." 44

Since the money used to discharge Garcia's debt rightfully belongedto him, FCI cannot be considered a third party payor under Art. 1302(2). It was but a conduit, or as aptly categorized by respondents,merely an agent as defined in Art. 1868 of the Civil Code:

Art. 1868. By the contract of agency a person bindshimself to render some service or to do something inrepresentation or on behalf of another, with the consentor authority of the latter.

FCI was merely fulfilling its obligation under the aforementioned Deedof Sale.

Additionally, FCI is not a disinterested party as required by Art. 1302

(2) since the benefits of the extinguishment of the obligation wouldredound to none other but itself. 45 Payment of the judgment debt toSBTC resulted in the discharge of the attachment lien on the disputedshares purchased by FCI. The latter would then have a free and"clean" title to said shares.

In sum, CEIC, for its failure to fulfill the requirements of Art. 1302 (2),was not subrogated to the rights of SBTC against Antonio Garcia anddid not acquire SBTC's attachment lien over the disputed shareswhich, in turn, had already been lifted or discharged upon satisfactionby Garcia, through FCI, of his debt to the said bank. 46

The rule laid down in the case of Samahang Magsasaka, Inc . v . ChuaGuan, 47 that as between two attaching creditors the one whose claimwas registered ahead on the books of the corporation enjoys priority,clearly has no application in the case at bench. As we have amplydiscussed, since CEIC was not subrogated to SBTC's right asattaching creditor, which right in turn, had already terminated afterGarcia paid his debt to SBTC, it cannot, therefore, be categorized asan attaching creditor in the present controversy. CEIC cannot

resurrect and claim a right which no longer exists. The issue in theinstant case, then, is priority between an attaching creditor (theconsortium) and a purchaser (FCI/CEIC) of the disputed shares ofstock and not between two attaching creditors — the subject matter ofthe aforestated Samahang Magsasaka case.

CEIC, likewise, argues that the consortium's attachment lien over thedisputed Chemphil shares is null and void and not binding on thirdparties due to the latter's failure to register said lien in the stock andtransfer books of Chemphil as mandated by the rule laid down bythe Samahang Magsasaka v . Chua Guan. 48

The attachment lien acquired by the consortium is valid and effective.Both the Revised Rules of Court and the Corporation Code do notrequire annotation in the corporation's stock and transfer books for theattachment of shares of stock to be valid and binding on thecorporation and third party.

Section 74 of the Corporation Code which enumerates the instanceswhere registration in the stock and transfer books of a corporationprovides:

Sec. 74. Books to be kept; stock transfer agent. —

xxx xxx xxx

Stock corporations must also keep a book to be knownas the stock and transfer book, in which must be kept arecord of all stocks in the names of the stockholdersalphabetically arranged; the installments paid andunpaid on all stock for which subscription has beenmade, and the date of payment of any settlement; a

statement of every alienation, sale or transfer of stockmade, the date thereof, and by and to whom made;


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Although the Monserrat case refers to a chattel mortgage over sharesof stock, the same may be applied to the attachment of the disputedshares of stock in the present controversy since an attachment doesnot constitute an absolute conveyance of property but is primarilyused as a means "to seize the debtor's property in order to secure thedebt or claim of the creditor in the event that a judgment isrendered." 51

Known commentators on the Corporation Code expound, thus:

xxx xxx xxx

Shares of stock being personal property, may be thesubject matter of pledge and chattel mortgage.Suchcollateral transfers are however not covered bythe registration requirement of Section 63, since ourSupreme Court has held that such provision appliesonly to absolute transfers thus, the registration in thecorporate books of pledges and chattel mortgages ofshares cannot have any legal effect. 52 (Emphasisours.)

xxx xxx xxx

The requirement that the transfer shall be recorded inthe books of the corporation to be valid as against thirdpersons has reference only to absolute transfers orabsolute conveyance of the ownership or title to ashare.

Consequently, the entry or notation on the books of thecorporation of pledges and chattel mortgages onshares is not necessary to their validity (although it isadvisable to do so) since they do not involve absolutealienation of ownership of stock (Monserrat vs. Ceron,58 Phil. 469 [1933]; Chua Guan vs. SamahangMagsasaka, Inc., 62 Phil. 472 [1935].) To affect thirdpersons, it is enough that the date and description ofthe shares pledged appear in a public instrument. (Art.2096, Civil Code.) With respect to a chattel mortgage

constituted on shares of stock, what is necessary is its

registration in the Chattel Mortgage Registry. (Act No.1508 and Art. 2140, Civil Code.) 53

CEIC's reliance on the Samahang Magsasaka case is misplaced.Nowhere in the said decision was it categorically stated thatannotation of the attachment in the corporate books is mandatory forits validity and for the purpose of giving notice to third persons.

The only basis, then, for petitioner CEIC's claim is the Deed of Saleunder which it purchased the disputed shares. It is, however, a settledrule that a purchaser of attached property acquires it subject to anattachment legally and validly levied thereon. 54

Our corollary inquiry is whether or not the consortium has indeed aprior valid and existing attachment lien over the disputed shares.

Jaime Gonzales' /Consortium's Claim

Is the consortium's attachment lien over the disputed shares valid?

CEIC vigorously argues that the consortium's writ of attachment overthe disputed shares of Chemphil is null and void, insisting as it does,that the notice of garnishment was not validly served on thedesignated officers on 19 July 1985.

To support its contention, CEIC presented the sheriff's notice ofgarnishment 55 dated 19 July 1985 which showed on its face that saidnotice was received by one Thelly Ruiz who was neither the presidentnor managing agent of Chemphil. It makes no difference, CEIC further

avers, that Thelly Ruiz was the secretary of the President ofChemphil, for under the above-quoted provision she is not among theofficers so authorized or designated to be served with the notice ofgarnishment.

We cannot subscribe to such a narrow view of the rule on properservice of writs of attachment.

A secretary's major function is to assist his or her superior. He/she isin effect an extension of the latter. Obviously, as such, one of herduties is to receive letters and notices for and in behalf of her

superior, as in the case at bench. The notice of garnishment was


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addressed to and was actually received by Chemphil's presidentthrough his sec

rule 57 cases (originals)

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