SECTION 20

Calderon vs. IAC (supra)

G.R. No. L-35951 August 31, 1977

PIONEER INSURANCE & SURETY CORP. AND HADJI ESMAYATEN LUCMAN, petitioners-
appellants,
vs.
THE HON. AGAPITO HONTANOSAS, JUDGE OF THE COURT OF FIRST INSTANCE OF CEBU,
BRANCH XI AND THE SPOUSES BEN UY RODRIGUEZ, respondents-appellees.

GUERRERO, J:

We reverse the decision of the Court of Appeals 1 promulgated, on October 30, 1972 in CA-G.R. No.
00951-R entitled "Pioneer Insurance & Surety Corp., et al., petitioners, vs. Hon Judge Agapito
Hontanosas, et al., respondents," which decision had denied for lack of merit the petition filed therein for
certiorari. prohibition and/or mandamus with preliminary injunction seeking to nullify the order of default of
February 29, 1972 and the decision of March 9, 1972 in Civil Case No. R-12069, entitled "Ben Rodriguez,
et al. vs. Allied Overseas Commercial Co., et al." issued by the respondent Presiding Judge of the Court
of First Instance of Cebu.

The case commenced on October 12, 1970 when Allied Overseas Commercial Co., Ltd., a foreign
corporation domiciled in Hongkong, filed in the Court of First Instance of Manila a complaint against
the respondent-appellee Ben Uy Rodriguez for the collection of a sum of money arising out of a
transaction between them in the amount of P450,533.00, the agreed peso equivalent of the
HK$418,279.60 balance unpaid. Plaintiff therein having prayed for the issuance of a writ of
preliminary attachment, the game was granted by the Court against Rodriguez upon the filing by
said plaintiff of a bond in the amount of P450,000.00, which petitioner-appellant Pioneer Insurance &
Surety Corp. duly posted. The corresponding levy in attachment was made by annotation on the
properties of Rodriguez which consisted of 4 pieces of lots; notices of garnishment on different Cebu
banks turned out negative, while personal properties found at the Rodriguez residence, although
attached, were, however, not removed therefrom.

A motion to dismiss the complaint was thereupon filed by Rodriguez, followed by an application for
damages against the bond, praying that he be permitted to present evidence of damages he
sustained by reason of the wrongful attachment, and to enforce said claim against the surety on its
bond, alleging further that otherwise his claim against the bond will forever be barred as said claim
cannot be the subject of an independent civil action under Sec. 20, Rule 57 of the Rules of Court.
The court iii its order of December 22, 1970 dismissed the complaint on the ground of improper
venue since defendant Rodriguez was a resident of Cebu, and lifted the writ of preliminary
attachment setting. the hearing on the claim for damages against the bond on January 14, 1971.

With the intention of filing a separate civil action in the Court t T of Firs instance of Cebu,
respondent-appellee Rodriguez withdrew his claim for damages against Pioneer Insurance and
Surety Corp., which motion for withdrawal was granted by the Court Thereafter, the respondents-
appellees Rodriguez spouses filed a complaint for damages on February 15, 1971 against Pioneer
Insurance & Surety Corp. and Allied Overseas (the Hongkong-based corporation), docketed as Civil
Case No. R-12069, Court of First Instance of Cebu presided by respondent judge lion Agapito
Hontanosas, the complaint praying that Rodriguez be declared as not in any manner indebted to the
defendant Allied Overseas Commercial Co. and that Pioneer Insurance & Surety Corp. be held liable
for damages, attorneys foes and expenses of litigation by reason of the and malicious attachment
issued by the Manila Court.

Defendant Pioneer Insurance and Surety Corp. filed its manner to the complaint (Civil Case No. R-
12069) alleging affirmative and special defenses. With respect to the other defendant Allied
Overseas Commercial Co., summons was (coursed thru the Philippine Consulate General in
Honkong which turned it down as it had no authority to serve the process under the Rules of Court.

On April 27, 1971, defendant Pioneer Insurance & Surety Corp. filed a motion for a preliminary
hearing of its affirmative defenses of lack of cause of action and bar by prior judgment and/or
abandonment, which are grounds for a motion to dismiss. This was denied by the respondent Judge
in his Order dated May 15, 1971, so also was the motion for reconsideration per its Order of June 2,
1971.

On May 5, 1971, the case was called for pre-trial. Plaintiffs with counsel attended; defendant Pioneer
Insurance & Surety Corp. thru counsel was present The other defendant, Allied Overseas
Commercial Co was not yet summoned, hence absent. The parties manifested failure to settle the
case amicably, thus the Court set the trial of the case on the merits for June 11, 1971.

A petition for certiorari and prohibition was then filed by Pioneer Insurance and Surety Corp. on
August 3, 1971 in the Court of Appeals, CA-G.R. No. 00369-R (Record on Appeal, p. 133) with
prayer to enjoin a hearing scheduled on August 7, 1971, alleging that respondent Judge committed
grave abuse of discretion amounting to lack and/or excess of jurisdiction in lending the motion for
preliminary hearing. The Court of Appeals In its Resolution dated August 7, 1971 distributed this
petition for certiorari. Record on Appeal, pp. 133-137)

An amended complaint was now submitted to ad admitted by the Court on August 14, 1971 by
impleading left petitioner-appellant Hadji Esmayaten Lucman as additional, defendant., making
allegations tending show confabulation between the new defendant, and the foreign-based
corporation to collect a non-existing debt. To the amended complaint, Pioneer Insurance & Surety
Corp filed its answer.

Lucman having been impleaded as assignee defendant Allied Overseas Commercial filed a motion
to dismiss on the ground of auter action pendant, that is an action pending in the Court of First
Instance of Rizal, Civil Case No. 14351 between the same parties with the same allegation and
defences of counterclaims. On November 25, 1971, respondent Judge denied the motion to dismiss,
whereupon Lucman filed his answer to the amended complaint.

Upon an ex parte motion of Rodriguez, the Court declared Lucman in default in its Order of January
10, 1972 and thereafter promulgated a decision dated January 28, 1972 against Lucman only,
ordering him to pay damage,- in the amount of P150,000.00; declaring that Rodriguez was no in any
manner indebted to Lucman or to Allied Overseas Commercial Co and that the Metropolitan Bank &
Trust Co. (Cebu Branch) Check No. CB2169 (xerox copy marked Exhibit M issued iv Rodriguez to
pay the indebtedness was a forgery.

Lucman moved on February 11, 1972 to set aside the order of default and to admit the answer
earlier filed by him to the amended complaint. On February 21. 1972, respondent Judge set aside
the order of default against Lucman including the decision against him, the dispositive portion of
which order reads as follows:

WHEREFORE, the Order of Default dated January 10, 1972 as well as the decision
(Re: Hadji Esmayaten Lucman) dated January 28, 1972, are hereby reconsidered
 and set aside. Let the hearing of this case on the merits be scheduled as previously
set for February 28, 1972 at 8:30 o'clock in the morning.

The parties thru their respective counsels are to be immediately notified of this order.
The Clerk of Court is directed to notify defendant Hadji Esmayaten Lucman thru
counsel Atty. Eriberto D. Ignacio At Rm. 414, Madrigal Bldg., Escolta, Manila by
telegram.

SO ORDERED.

Cebu City, Philippines, February 21, 1972.

(SGD.) AGAPITO
HONTANOSAS

JUDGE

(Record on Appeal, pp.

297-298)

Forthwith, the clerk of court sent the telegram notices in the following wise:

YOUR MOTION SET ASIDE ORDER, DEFAULT AND DECLARE PROCEEDINGS

NULL AND VOID RE CIVIL CASE BEN RODGIGUEZ ET AL VERSUS HADJI
ESMAYATEN LUCMAN GRANTED STOP PRETRIAL SHALL PROCEED AS
PREVIOUSLY SCHEDULED FEBRARY 28 1972 MORNING

(Record on Appeal, p.
298)

Counsel for the petitioners received the telegram notices on February 21, 1972; and on February 23,
1972 counsel filed an urgent motion for postponement of the pre-trial, claiming that he was not
aware of any such pre-trial having been previously set for February 28, 1972 in the morning, as
indeed no such pre-trial can as yet be set as the issues with respect to the amended complaint are
not yet fully joined since plaintiffs have not answered the compulsory conterclaims separately set up
by the defendants in said summons to theforeign corporations Allied Overseas Commercial Co. Ltd.
of Hongkong, nor have plaintiffs asked that said foreign corporation be dropped from the amended
complaint; that counsel has a hearing in Manila of a criminal case which is of intransferable
character, and prayed that the pre-trial be set at some other date in March preferably either March
22 or 23, 1972 at 9:00 a.m. which were the only free dates for the month of March 1972 in the
calendar of the counsel. (Record on Appeal, pp. 301-303)

Apparently, the above urgent motion for postponement although sent through registered airmail
special delivery and received by the Dispatching Section of the Post Office of Cebu on February 28,
1972 (Resolution, Court of Appeals, Recrod on Appeal, pp. 365-366) was not received by the Court
for on February 28, 1972 when the case was called, an order was issued by the Court postponing
the pre-trial of the case to March 20, 1972 in ivew of the absence of the defendants and counsel
notwithstanding notices of hearing and telegrams sent to them, on the condition that should
defendants be found that as to plaintiffs will be allowed to present their evidence and the defendants
will be declared in default for failure to appear at the pre-trial. (Record on Appeal, pp. 304-305)
Upon verification from the radio Communications of the Philippines that the telegrams mentioned
above were delivered and received by the addresses on February 21, 1972, the Court on February
29, 1972 declared the defendants in default and allowed the plaintiffs to present their evidence in
support of their complaint before the Clerk of Court. (Record on Appeal, pp. 306-307). The evidence
was thereupon presented and on March 9, 1977 the respondent Judge promulgated his Decision
declaring that the plaintiff Rodriguez is not in any manner indebted to defendant Lucman or to Allied
Overseas Commercial Co., declaring the personal check of the plaintiff to be a forgery; that the
attachment of the properties of plaintiff in the Manila case was wrongfu; amd malicious, and ordering
defendant Pioneer Insurance and Surety Co. to pay P350,000.00 as moral damages, P50,000.00 as
exemplary damages and P50,000.00 for expenses of litigation in Manila. Defendant Lucman was
also ordered to pay plaintiffs the sum of P50,000,00 as exemplary damages and P30,000.00 as
attorney's fees.

Within 30 days reglementary period to perfect the appeal, defendants Pioneer Insurance & Surety
Corp. and Hadji Esmayaten Lucman filed the Notice of Appeal and the Original record on Appeal,
the latter ordered corrected and amended but finally approved by the Court on July 31, 1972.

Meanwhile, petitioner's filed on April 4, 1972 before the Court of Appeals a petition for certiorari,
prohibition and/or mandamus with preliminary injunction CA-G.R. No. 00951-R) seeking to nullify the
order of default of February 29, 1972 and the Decision of March 9, 1972 of respondent Judge, to
command said Judge to elevate the records of the case for review and to prohibit him from enforcing
his decision and from taking further action in the case, No. 12069.

On April 13, 1972, the Court of Appeals promulgated its resolution dismissing the petition
aforestated and ruled among others as follows:

Furthermore, petitioners instant remedy is not proper because of their own admission
that appeal is available from the decision of respondent Judge (Discussion, pp. 12-13
of their Petition). This is shown by the handwriting at the upper right hand corner of
Annex R (Decision) when they received the decision on March 25, 1972 and the
period to appeal will expire on April 24, 1972.

We are not, therefore, convinced that the remedy of appeal is inadequate,

considering that whatever errors respondent Judge might have committed can be
assigned as specific errors on appeal. It has been consistently held that certiorari is
not available where the remedy of appeal is present .

(Recor
d on
Appeal,
p. 373)

On a motion for reconsideration, the Court of Appeals reconsidered the resolution cited above, and
issued another resolution dated July 25, 1972 giving due course to the petition and required the
respondents to answer the petition (not a motion to dismiss), and among others, stated, to wit:

Upon this fact alone, we believe as petitioners contend that although appeal is
available, such remedy is not sufficiently speedy and adequate to cure the defects in
the proceedings therein or to remedy the disadvantageous position of Petitioners
because, since they were deprived of raising any issue or defense that they have in
the respondent court by reason of the order of default, they cannot raise said issues
or defenses for the first time on appeal.
 (Rollo,
P. 98)

The petition having been given due course, the respondents herein answered the same, and on
October 30, 1972, the Court of Appeals rendered its Decision denying the petition for lack of merit,
and held among others, thus

Finally we are not also convinced that the remedy of appeal is inadequate under the
circumstances obtaining in the principal cue Whatever errors respondent Judge
might have committed in his order or judgment may be assigned as specific errors in
their appeal. This Court can review any all such errors of fact and law in the appeal.

(Rollo,
p. 138)

Petitioners filed a motion for reconsideration which was denied, hence this appeal by certiorari from
the decision of the Court of Appeals and is now before Us being assailed and faulted on three
principal issues: 1. the illegality of th order of the default and the decision arising therefrom; 2. the
inadequacy of the remedy of appeal; and 3. the lack of jurisdiction of the Court in the principal case.

The petitioner's main thrust in this legal attack is directed to the other dated February 29, 1972
declaring defendants (now the petitioners) in default at the second pre-trial hearing and allowing the
plaintiffs (the present private respondents) to present evidence ex parte before the Clerk of Court,
which evidence uncotradicted and unrebutted was lifted almost en toto as the basis of the decision
granting damages so enormous and so huge in amount as to exceed the bounds of reason and
fairness.

The procedure for the pre-trial of a case is laid down by Rule 20, Revised Rules of court, which
provides, to wit:

Sec. 1. Pre-trial mandatory. In any action, after the last pleading has been filed,
the ourt shall direct the parties and their attorneys to appear before it for a
conference to consider':

(a) The possibility of an amicable settlement or of a submission to arbitration;

(b) The simplification of the issues;

(c) The necessity or desirability of amendments to the pleadings;

(d) The possibility of obtaining stipulations or admissions of facts and of documents

to avoid unnecessary proofs;

(e) The limitation of the number of witnesses;

(f) The advisability of a preliminary reference of isues to a commissioner,

(g) Such other matters as may aid in the prompt disposition of the action.

Sec. 2. Failure to appear at pre-trial conference. A party who fails to appear at a

pre-trial conference may be non-suited or considered as in default.
 Sec. 3. Allows the ocurt to render judgment on the pleading or summary judgment as
justice require. Sec. 4 directs that a reocrd of the pre-trial results be made; and Sec.
5 requires the court to prepare a pre-trial calendar of cases for consideration as
above provided, and that upon the submission of the last pleading in a particular
case, it shall be the duty of the clerk of court to place case in the pre-trial calendar.

Unquestionably, the present Rules make pre-trial mandatory. And the reason for making pre-trial
mandatory is that pre-trial conferences bring the parteis together, thus making possible an amicable
settlement or doing away with at least the non-essentials of a case from the beginning. (Borja vs.
Roxas, 73 Phil. 647).

Philippine jurisprudence has laid down the legal doctrine that while it is true that it is mandatory for
the parties and their attorneys to appear before the trial court for a pre-trial conference to to consider
inter alia the possibility of an amicable settlement, the rule wa sby no means intended as
an implacable bludgeon but as a tool to assist the trial court in the orderly and expeditious conduct of
trial. The rule is addressed to the sound discretion of the trial court (Rice and Corn Administration vs.
Ong Ante, et. al., G.R. No. L-30558, Oct. 4, 1971).

Both client and counsel must appear at the pre-trial. this is mandatory. Failure of the client to appear
is a ground for dismissal. (American Ins. Co. vs. Republic 1967D Phil. 63; Home Ins. Co. vs. United
States Lines Co., 1967D Phil. 401, cited in Saulog vs. Custombuilt Manufacturing Corp. No. L-
29612, Nov. 15, 1968; Taroma v. Sayo, L-37296, Oct. 30, 1975 (67 SCRA 508).

In the case of Insurance Co. of the North America vs. Republic, et. al., G.R. No.L-26794, Nov. 15,
1967, 21 SCRA 887, the Supreme Court, speaking thru Justice Bengzon, held that Sec. 1, Rule 20
of the Rules requries the court to hold a pre-trial before the case is heard and since in this case, a
pre-trial has already been had, the fact that an amended complaint was later filed, did not
necessitate another pre-trial. it would have been impractical, useless and time-consuming to call
another pre-trial.

Under the rules of pleading and practice, the answer ordinarily is the last pleading, but when the
defendant's answer contrains a counterclaim, plaintiff's answer to it is the last pleading. When the
defendant's answer has a cross-claim, the answer or the cross-defendant to it sit he last pleading.
Where the plaintiff's answer to a counterclaim contains a counterclaim constains a counter-claim
agains the opposing party or a cross-claim against a co-defendant, the answer of the opposing party
to the counterclaim or the answer of the co-defendant to the cross-claim is the last pleading. And
where the plaintiff files a reply alleging facts in denial or avoidance of new matter by way of defense
in the answer, such reply constitutes the last pleading. (Francisco, the Revised Rules of Court, Vo.
II, pp. 2-3).

The above citations and authorites are the ground rules upon which the conflictings claims of the
opposing partie's may be resolved and decided.

First, the legality of the order of default dated February 29, 1971 and the decision dated March 9,
1972. there is spread out in the Record on Appeal, pp. 92-93 that on May 5, 1971, a pre-trial. was
conducted by the court between the plaintiff Ben Uy Rodriguez spouses and the defendant Pioneer
Insurance & Surety Corp. The record or results of said pre-trial is found in the ordr of the court dated
May 5, 1971, which states:

When this case was called for pre-trial today, the plaintiffs and their counsel, Atty.
Hilario Davide Jr. appeared. On the other hand, the defendant Pioneer Insurance &
Surety Corp. represented by its counsel, Atty. Amando Ignacio also appeared.
 When asked by the court if there is any possibility of settling this case amicably, the
counsel for the defendant answered in the negative. Both counsels agreed that the
only issue to the resolved bu the Court is whether the bonding company is laible or
not, and if so, how much?

Atty. Hilario Davide, Jr. caused the markings of the following exhibit.

Exhibit "A-pre-trial", the finanacial report of Ben Rodriguez as of December 31, 1969;
and

Exhibit "B-pre-trial", the affidavit of handwriting expert Perfecto Espina, and

thereafter he reserved his right to mark additinal exhibits during the trial on the
merits.

The counsel for the defendant also reserved his right to object to the Exhibits of the
plaintiffs and mark his exhibits during the trial on the merits of the case.

Both counsels are given ten (10) days from today within which to file their
simulatteneous memoranda or authorities in support of the motion for preliminary
hearing and its objection thereto. and thereafter his incident will be resolved by the
Court.

Following agreement of the partiesm, the trial on the the merits of this case is set for
June 11, 1971 at 8:30 o'clock in the moring.

The parties thru their respective counsels are notified in open court of this order.

SO ORDERED.

Cebu City, Philippines, May 5, 1971.

SGD.) AGAPITO
HONTANOSAS

JUDGE

(Record on Appeal, p.
93)

The defendant Pioneer Insurance & Surety Corp. having complied with the order of the Court to
appear and attend this pre-trial, and had manifested its opposition to settling the case amicably, said
party may no longer be compelled to attend a second pre-trial hearing, and neither may it be
punished by the court by its orde declaring said defendant as in default. The mandatory character of
a pre-trial nad the serious consequences confronting the parties in the event that each party fails to
attend the same must impose a strict application of the Rule such that where we find no authority for
the the Court to call another pre-trial hearing, as in fact there is none in said Rule, the conclusion is
inescapable that the respondent Judge committed a grave and serious abuse of discretion and acted
in excess of jurisdiction in declaring defedant Pioneer Insurance & Surety Corp. "as in default" for
failure to attend the second pre-trial called by the Judge on February 29, 1972. In other words, there
is nothing in the Rules that empowers or has called a first pre-trial duly attended by tha prties, and
lacking such authority, the court perforce lack the autority to declare a failure to prosecute on the
part of the plaintiff for failing to attend such second pre-trial; it also lack the authority to declare the
defendant "as in default" by reason of the latter's failure to be present at the said second pre-trial.

It serves no purpose for the court to call again another pre-trial where the parties had previously
agreed to disagree, where the issues had been joined and where the court itself had been satisfied
that a hearing on the merits is the next step to conduct as int he instant case where the court, after
the pre-trial on May 5, 1971, set he trial of the case on its merits for June 11, 1971. Indeed, a second
pre-trial is impractical, useless and time-consuming.

We have not lost sight of the fact that when the first pre-trial was called and conducted, the party
litigants were the Ben Uy Rodriguez spouses as plaintiffs, while Pioneer Insurance & Surety Corp.
and Allied Overseas Commercial Co. (although not yet summoned) were the defendants, whereas at
the time the second pre-trial was called, the original complaint had been amended to implead Hadji
Esmayaten Lucman as additional defendant. The amendment of the complaint to implead Lucman
did not, however, alter the impracticability, the uselessness and the absence of authority to call a
second pretrial hearing since the amended complaint merely impleaded Lucman as the assignee of
the original defendant Allied Overseas Commercial Co. and no additional cause of action was
alleged; the prayer was the same and the amount of damages sought was the same as that in the
original complaint.

Second, the prematureness of the pre-trial called on February 28, 1972, assuming that there was
need to have another pre-trial. The records (Record on Appeal, p. 293) show that the notice of the
clerk of court setting the case for pre-trial on February 28, 1972 was issued and dated February 7,
1972. As of this date, February 7,1972, the complaint had been amended on August 27, 1971 by
impleading the defendant Hadji Esmayaten Lucman who filed his answer on December 24, 1971,
interposing therein a compulsory counterclaim. (Record on Appeal, pp. 239-240). Before this date of
February 7, 1972, the court had already promulgated the Decision dated January 28, 1972 as
against Lucman only.

Likewise, as of February 7, 1972, defendant Pioneer Insurance & Surety Corp. had also filed its
answer to the amended complaint, interposing too a compulsory counterclaim. But as of February 7,
1972, the plaintiffs have not yet filed their answer to the compulsory counterclaims of the defendants
(which is necessarily the last pleading to be filed in order that the case is ready and ripe for the pre-
trial). It was only on February 22, 1972 that plaintiffs made their reply to the answer, and their
answer to the compulsory, counterclaim of defendant Lucman 'Record on Appeal, pp. 299- 301).

The records do not disclose any reply of the plaintiffs to the answer of Pioneer Insurance & Surety
Corp., nor any answer to the compulsory counterclaim of the Corp. The above state of the case as
far as the pleadings are concerned clearly and manifestly show that the case was not yet ready for
pre-trial, that it was as yet premature because the last pleading had not yet been filed by the
plaintiffs.

Even the state of the pleadings as of February 21, 1972 when the telegrams were sent notifying the
parties of the pre-trial for February 28, 1972 reveals the prematureness of calendaring the case pre-
trial. As of February 21, 1972, the complaint was already amended to implead Lucman who
submitted his answer with compulsory counterclaim. but plaintiffs had not yet filed their reply and
their answer to the counterclaim, because the records indicate that the plaintiffs' answer to the
counterclaim, because the records indicate that the plaintiffs' answer to the counterclaim is dated
February 22, 1972. (Record on Appeal, pp. 299-301). And to the compulsory counterclaim of
defendant Pioneer Insurance & Surety Corp., plaintiffs made no answer whatsoever.
Third, the notices given by the clerk of court thru telegrams on February 21, 1972 notifying the
parties of the pre-trial on February 28, 1972 were insufficient, in law and jurisprudence.

We have careffully noted the telegraphic notices sent by the clerk of court and we find this omission
which is fatal to the respondents' cause: no telegram was sent to the defendant Pioneer Insurance &
Surety Corp. The telegram was sent to the counsel of this defendant, but none to the defendant
itself.

The Court had directed the clerk of court to send notice by telegram to the parties for the February
28 pre-trial. The clerk did send the telegram to Atty. Eriberto Ignacio, counsel for Pioneer Insurance
& Surety Corp., but omitted and failed to send telegram to the party itself, the corporation, as
required strictly by law. Notice to the counsel is not enough. We reiterate that this failure is a
jurisdictional defect.

Reading the order of the court dated february 29, it appears in black and white (Record on Appeal,
pp. 306-307, Annex W, Rollo, p. 194) that only two telegraphic messages were sent by the clerk of
court, thus (1) the message addressed to Atty. Eriberto Ignacio delivered to the given address at
3:45 P.M. the same day it was filed but the signature of he recipient was unreadable; (2) the other
message addressed to Hadji Esmayaten Lucman per RCPI San Juan also delivered on the same
day, February 21, 1972 and personally 4eceived by the addressee himself. This was the offficial
advice received by the Court from the Radio Communications of the Philippines thru which the
telegrams were wired.

This is also confirmed by the Order of the Court dated April 11, 1972 denying the defendant's Urgent
Motion for Reconsideration. The other states.

Per advice from the Radio Communications of the Philippines, Inc. these two
messages were received by the addressees, Atty. Eriberto Ignacio and Hadji
Esmayaten Lucman on the same day it was filed, that is on February 21, 1972.

(Recor
d on
Appeal,
p. 357)

Decidedly, there was no telegram sent to party defendant Pioneer Insurance & Surety Corp.,
informing it of the February 28 pre-trial hearng. The reason for requiring the presence of the party
who must be notified is explained in the case of Home Insurance Co. vs. United Lines Co. (L-25593,
November 15, 1967, 21 SCRA 863), where the Court, speaking thru Justice Bengzon, said that:

A party who fails to appear at a pre-trial conference may be non-suited or considered

as in default. This shows the purpose of the Rules to compel the parties to appear
personally before the court to reach, if possible, a compromise. Accordingly the court
is given the discretion to dismiss the case should plaintiff not appear at the pre-trial.

Fourth, the denial of the motion for postponement was a grave abuse of discretion. We grant the
court the discretion to postpone any hearing, pre-trial or on the merits of the case, but the exercise of
discretion must be based on reasonable grounds. The motion (Record on Appeal, pp. 301-303) had
alleged grounds which are meritorious and not frivolous nor intended for delay, which are 1. no
formal order of the court scheduling the February 28 pre-trial had been received; 2. pre-trial cannot
be had as yet be set as the issues are not yet fully joined; 3. counsel has a hearing previously set in
Manila in a criminal case which was of an intransferable character. We are also concede that
counsel may not presume nor take for granted that his motion for postponement and the proposed
setting to March 22 or 23, 1972 will be granted by the court but where the court had actually
postponed the hearing on February 28, 1972 due to the absence of the defendants and their
counsel, and scheduled the pre-trial to March 20, 1972 at 8:30 o'clock in the morning (Record on
Appeal, pp. 304-306), we find no reason nor fairness in the court's order of February 29, 1972
finding defendants as in default since the pre-trial was moved to a later date in March as prayed in
the motion.

The motion for postponement was received on February 28, 1972 at the Cebu Post Office, as shown
in the postmarks on the envelope (photographed on p. 322, record on Appeal) but was not
immediately delivered to the court although the envelope bore the words, "registered Air Mail/Special
Delivery with Return Card." If the letter containing the moton was not yet delivered to the Court the
next day, February 29, 1972 when the court made the order declaring defendants in default, this was
clearly a postal neglect and omission to perform its duty, not attributable to defendants, The Court, in
the exercise of wise discretion, could have restored their standing in court and given them an even
chance to face their opponents.

For refusing to set aside said order of default and the decision, we hold the Court of Appeals in
reversible error therefor. The respondent Court of Appeals has ignored established rulings of the
Supreme Court in Pineda vs. Court of Appeals, 67 SCRA 228, that a party may not be declared in
default for future to attend the pre-trial where only his counsel was notified of the pre-trial schedule;
in Sta. Maria, Jr. vs. Court of Appeals, 45 SCRA 596 that a pre-trial is unnecessary where the case
could not be settled and that the fact that an amended complaint was later filed with leave of court
did not, undue the circumstances, necessitate another pre-trial; and in Pineda vs. Court of Appeals,
67 SCRA 288 that Courys should be liberal in setting asiode default judgment.

At this juncture, it is necessary to emphasize once more the pronouncement of this Court speaking
through Justice Teehankee in Taroma vs. sayo, 67 SCRA 509, pp. 512-513, that:

For the guidelines of the bench and bar, therefore, the Court in reaffirminf the ruling
that notice of pre-trial must be served separately upon the party and his counsel of
record, retates that while service of such notice to party may be made directly to the
party, it is best that the trial courts uniformly serve such notice to party through or
care of his counsel of the obligation of notifying the party of the date, time and palce
of the pre-trial conference and assuring that the party either appear thereat or deliver
to counsel a written authority to represent the party with power to compromise the
case, with the warning that a party who fails to do so may be non-suited or declared
in default.

The second point at issue is whether the remedy of ordinary appeal in the case is palin, speedy and
adequate such that the writ of certiorari will not lie. We have adverted to previously that the Court of
Appeals in its extended Resolution dated July 25, 1972 ruled that although appeal was available,
such remedy is not sufficiently speedy and adequate to cure the defects in the proceedings therein
or to remedy the disadvantageous position of petitioners because, since they were deprived of
raising any issue or defense that they have in the respondent court by reason of the order of default,
they cannot raise said issue or defense for the first time on appeal. Yet, on October 30, 1972, the
Court in its decision held that the remedy of appeal is not inadequate in that whatever errors
respondent Judge might have committed in his order or judgment may be assigned as specific errors
in their appeal before said tribunal, and that it can review any errors of fact and of law in the appeal.
This conflicting stand of the Court of Appeals issuing from the same case is as difficult to resolve as
it is to reconcile them. We have but to rule on them. hold one to be correct and dislodge the other as
an error.

On general principles, the writ of certiorari will lie where there is no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law. The existence of an appeal is a bar to writ of
certiorari where such appeal is in itself a sufficient and adequate remedy, in that it will promptly
relieve the petitioner from the injurious effects of the order or judgment complained of. (Silvestre v.
Torres, 57 Philippines 885, 890; Pachoco v. Tumangday L-14500, May 25, 1960; Lopez et al. v.
Alvendia, et al. L-20697, Dec. 24, 1964). Courts ordinarily do not deny the writ if the result would be
to deprive a party of his substantial rights and leave him without remedy, and in those instances
wherein the lower court has acted without jurisdiction over the subject matter, or where the order or
judgment complained of is a patent nullity, courts have gone even as far as to disregard completely
the question of petitioner's fault, the reason being, undoubtedly, that acts performed with absolute
want of jurisdiction over the subject matter are void ab initio and cannot be validated by consent,
express or implied, of the parties. (Moran, Comments on the Rules of Court, Vol. 3, 1970 ed., pp.
169-170).

There are numerous cases where the Supreme Court has granted the writ notwithstanding the
existence of an appeal. Thus, the Supreme Court to avoid future litigations, passed upon a petition
for certiorari though the proper remedy was appeal. Writs have been granted despite the existence
of the remedy of appeal where public welfare and the advancement of public policy so dictate, the
broader interests of justice so require, or where the orders complained of were found to be
completely null and void, or that the appeal was not considered the appropriate remedy. (Fernando
v. Varquez, No. L-26417, Jan. 30, 1970)

As to what is an adequate remedy, it has been defined as "a remedy which is equally beneficial,
speedy and sufficient, not merely a remedy which at some time in the future will bring about a revival
of the judgment of the lower court complained of in the certiorari proceeding, but a remedy which will
promptly relieve the petitioner from the injurious effects of that judgment and the acts of the inferior
court or tribunal." (Silvestre v. Torres, 57 Phil. 885, 11 CJ., p. 113)

Now to the case at bar, We find here a number of special facts and circumstances which addresses
themselves to the wise discretion of this court with such force to induce Us to grant the writ in order
to prevent a total or partial failure of justice, to redress or prevent the wrong done. We are satisfied
that petitioners are cornered into a desperate position where they have been ordered to pay
damages over and above the amount of the bond posted for the attachment of private respondents'
properties as ordered by the decision of the court based on evidence presented ex parte by reason
of the order of default, and more than that, plaintiff Rodriguez is relieved from civil liability on an
inexplicable and unprecedented finding that the plaintiffs' check was a forgery, (when the check
exhibited was only a xerox copy of the original, which original was in the records of the case filed in
the court of First instance of Rizal, Civil Case No. 14499 entitled "Hadji Esmayaten Lucman vs.
Benjamin Rodriguez, et al.," (Record on Appeal, pp. 49-55). Again, the conflicting notices as to the
hearing ordered, pre-trial in one and on the merits in the other, is not the doing of the petitioners of
their standing in court was in effect a failure of justice. Petitioners can no longer present their
evidence to rebut the claim of damages, or reduce the unconscionable and excessive damages or
question the release of plaintiff's debt, for the same may not be submitted nor raised for the first time
on appeal. We, therefore, hold that the Court of Appeals erred in holding that the appeal is
adequate. The court erred in ignoring the doctrine laid down in Omico v. Villegas, 63 SCRA 285, that
appeal is not an adequate remedy where party is illegally declared in default.
Petitioners assail the jurisdiction of the court of First Instance of Cebu in Civil Case No. 12069-R
filed by the Rodriguez spouses, seeking damages for the alleged malicious and unlawful is2suance
of the writ of preliminary attachment against the latter's properties granted by the Court of First
Instance of Manila upon the posting of a security bond in the amount of P450,000.00 given by the
petitioner Pioneer Insurance & Surety Corp. The petitioners contend that under See. 20, Rule 57 of
the Revised Rules of Court, the claim for damages against a bond in an alleged wrongful attachment
can only be prosecuted in the same court where the bond was filed and the attachment issued.

Rule 57, Sec. 20 of the Revised Rules of Court provides, to wit:

Claim for damages on account of illegal attachment. If the judgment on the action be
in favor of the party against whom attachment was issued, he may recover, upon the
bond given or deposit made by the attaching creditor, any damages resulting from
the attachment. Such damages may be awarded only upon application and after
proper hearing, and shall be included in the final judgment. The application must be
filed before the trial or before appeal is perfected or before the judgment becomes
executory, with due notice to the attaching creditor and his surety or sureties, setting
forth the facts shaking his right if damages and the amount thereof.

xxx xxx xxx

On the other hand, the private respondents argue that the above rule is not applicable to the case at
bar, citing Moran, Vol. Rules of Court, 1963 pp. 51-52, to wit:

... the rule that a claim for damages arising from the issuance of a wit of attachment,
injunction, receivership and replevin should be presented in the same action is not
applicable where the principal case has been dismissed for lack of Jurisdiction and
no claim for damages could therefore have beer presented in said case.

The position of the petitioners is correct. The ruling in the case of Santos vs. Court of Appeals, et al.,
95 Phil. 360 advanced by respondents to support their stand, is not controlling here, or We find that
no claim for damages against the surety bond in support of a preliminary. attachment was ever
presented or filed. The latest decisions of this Court in Ty Tion et al., vs. Marsman & Co., et al., L-
17229, July 31, 1962, 5 SCRA 761 reiterating the rulings inDel Rosario vs. Nava, 50 O.G.
4189; Estioco vs. Hamada, L- 11079, May 21, 1958; Neva Espa;a vs. Montelibano, 58 Phil,
807; Tan Suyco vs. Javier, 21 Phil. 82; Raymundo vs. Carpio, 33 Phil. 894; Santos v. Moir, 36 Phil.
350; lay down the proper and pertinent rule that the claim for damages against a bond in an aleged
wrongful attachment can only be prosecuted in the same court where the bond was filed and the
attachment issued.

Moreover, the records show that private respondent Rodriguez filed an Application for Damages
Against Bond dated December 3, 1970 (Record on Appeal, pp. 77-81) praying that

Wherefore, it is respectfully prayed that in the event the motion to dismiss and the
motion to discharge attachment were granted, the defendant be allowed to present
evidence to prove damages sustained by him by reason of the attachment against
the Pioneer Insurance & Surety Corp. in a hearing that may be conducted for the
purpose with due notice to the plaintiff and the surety, and that after due notice and
hearing judgment be rendered against the Pioneer Insurance and Surety Corp. for
such amount of damages as may be proved and established for defendant.
 The defendant further prays for such other reliefs and remedies consistent with law,
justice and equity.

Cebu City, December 3, 1970.

ESTANISLAO
FERNANDEZ

JOSE D. PALMA

Attorney for Defendant

The Court of First Instance of Manila in its order dated Dcember 22, 1970, after dismissing the
complaint and lifting the writ of preliminary attachment, ordered that the hearing of the application for
damages against the bond be set aside on January 14, 1971 at 8:30 a.m. (Record on Appeal, pp.
82-86)

In other words, defendant Rodriguez sought that judgment be rendered against the surety for such
amount of damages as may be proved or established by him, and was granted by the court the
opportunity to prove damages against the bond of the surety company. He even cited the very
provision of the Revised Rules of Court, Rule 57, Sec. 20 to justify his application, and the cases
supporting his application, for otherwise his claim will forever be barred. In effect, at this point in
time, defendant Rodriguez waived the lack of jurisdiction on his person, be seeking an affirmative
relief from the court, which he cannot now complain before this Court.

Thus, Francisco, in his Revised Rules of Court, Vol. 1, p. 130 citing 21 C.J.S. writes that:

Objections to lack of jurisdiction of the person, and other objections to jurisdiction not
based on the contention that there is an absolute want of jurisdiction of the subject
matter, are waived by invoking the court's jurisdiction, as by a counterclaim, consent,
or voluntary submission, to jurisdiction, or conduct amounting to a general
appearance.

In Soriano v. Palacio, 12 SCRA 557, this Court held that even if jurisdiction was not originally
acquired by the Court over the defendant due to allegedly defective services of summons, still when
the latter filed a motion for reconsideration of the judgment by default, he is considered to have
submitted to said court's jurisdiction.

We agree with the petitioners that the Court of Appeals erred in not dismissing the complaint with
respect to the petitioner Pioneer Insurance & Surety Corp., over which respondent-appellee Judge
had not acquired jurisdiction pursuant to Sec. 20, Rule 57 of the Revised Rules of the Court.

IN VIEW OF THE FOREGOING, the judgment of the Court of Appeals is reversed and another one
is entered declaring the order of default dated February 29, 1972 and the decision rendered by the
respondent Judge on March 9, 1972 null and void, holding that the Court of First Instance of Cebu
lacks jurisdiction to hear and determine the claim for damages arising from the alleged wrongful
attachment issued by the Court of First Instance of Manila and ordering the dismissal of that case
(Civil Case No. 12069 of the Court of First Instance of Cebu), as well as the pending of the judgment
herein annuled in the Court of Appeals which has been rendered moot.

Petition granted.
SO ORDERED.

G.R. No. 84979 November 6, 1989

STRONGHOLD INSURANCE CO. INC., petitioner,

vs.
HON. COURT OF APPEALS, HON. CLEMENTE M. SORIANO, Presiding Judge of Branch 3,
Regional Trial Court of Manila, Sheriff JAIME K. DEL ROSARIO, Deputy Sheriff of Branch 3,
Regional Trial Court of Manila, and JOSE OROSA, respondents.

REGALADO, J.:

In a complaint filed against private respondent Jose Orosa, dated November 13, 1984 and docketed
as Civil Case No. 8428188 in Branch 3 of the Regional Trial Court of Manila, therein plaintiff FCP
Credit Corporation prayed that a writ of replevin be issued against private respondent Jose Orosa
ordering the seizure of the motor vehicle covered by a chattel mortgage executed in favor of said
plaintiff. Upon the filing of an affidavit of merit 1 and a replevin bond put up by petitioner
Stronghold Insurance Co., Inc. in the amount of P210,000.00, 2 a writ of
replevin was issued by the court a quo.

On March 25, 1988, judgment was rendered by the trial court 3 with the following dispositive
portion:
WHEREFORE, judgment is rendered for the defendant, and against the plaintiff:

1) Dismissing the complaint for lack of merit;

2) Declaring that the plaintiff was not entitled to the Writ of Replevin,
issued on January 7, 1985, and is now liable to the defendant for
actual damages under the Replevin bond it filed;

3) On defendant's counterclaim, ordering the plaintiff to pay the

defendant the sum of P400,000.00 as moral damages; P100,000.00
as exemplary damages, and P50,000.00 as, and for, attorney's fees;

4) Ordering the plaintiff to return to the defendant the subject 1983

Ford Laser Sedan, with Motor or Serial No. SUNKBT 14584, or its
equivalent, in kind or value, in cash as of this date and to pay the
costs.

Copy of the decision was received by private respondent on April 11, 1988 while petitioner received
a copy thereof on April 13, 1988. On the following day, April 14, 1988, private respondent Orosa filed
a motion for execution of the judgment pending appeal, alleging that the judgment in the case may
be rendered ineffective because FCP Credit Corporation was already liquidating its business affairs.
He expressed his willingness to file a bond for such purpose. 4 Petitioner opposed said
motion through a "Motion for Partial Reconsideration of the Decision and
Opposition to the Motion for Execution" 5 filed on April 26, 1988, on the
following grounds, as summarized by the respondent court, to wit:
 1. The petitioner was adjudged liable in the decision without the
benefit of hearing in violation of Rule 57, Section 20 in relation to
Section 10, Rule 60, Rules of Court;

2. The petitioner being not a party to the proceedings, judgment

against it could not be rendered without violating the elementary rules
of procedure;

3. The allegations in private respondent's motion for execution

pending appeal are purely speculative, self-serving conclusions and
without factual basis;

4. The exact liability of the bondsman is not specified. 6

An application for judgment on the bond was thereafter filed by private respondent Orosa on April
26, 1988, adopting by reference his motion for execution of judgment pending appeal and the
findings of the trial court. 7 An opposition thereto was filed by petitioner on the
contentions that the appeal had been perfected hence the trial court had
already lost jurisdiction to hear therein defendant's motion; that the application
for damages does not set forth the facts showing his right thereto and the
amount thereof; and that the motion is fatally defective for lack of the requisite
three (3) days notice. 8
The hearing on the application was scheduled on April 29, 1988, but the herein private respondent
Orosa and his counsel failed to appear therein. Consequently, petitioner's counsel orally moved for
the denial of said application for judgment on the bond, but the court below denied said motion and
declared all incidents submitted for resolution. 9In the meantime, action on therein
plaintiff 's notice of appeal and motion to elevate the records to the Court of
Appeals, which were earlier filed on April 14, 1988, was held in abeyance by
the court. 10
In a special order dated June 3, 1988, the trial court ordered the issuance of a writ of execution
pending appeal upon respondent Orosa's filing of a bond in the amount of P500,000.00. The special
reasons cited by the court for said immediate execution are (1) "defendant's willingness to file a
required bond to answer for damages in the case of reversal of the judgment" and (2) "the plaintiff is
in imminent danger of insolvency or dissolution." 11 The motion for partial reconsideration
of the decision and opposition to the motion for execution filed on April 26,
1988 by petitioner was likewise denied for lack of merit in another order on the
same date. 12
Respondent Orosa's right to recover damages on the replevin bond and the liability of herein
petitioner for said damages and for all the sums of money recovered in the case in the lower court by
therein defendant against the plaintiff, jointly and severally with the plaintiff to the extent of the value
of the bond, was held to be unquestionable in an order of the court a quo dated June 6, 1988. 13

The following day, June 7, 1988, the trial court issued what was designated as a "supplemental
decision," which reads:
 Pursuant to the order of June 6, 1988 and Sec. 10, Rule 60 of the Rules of Court,
and by way of supplement to the decision, dated March 25, 1988, judgment is hereby
rendered, for the defendant, ordering the Surety, Stronghold Insurance Co., Inc.,
jointly and severally with the plaintiff, to return to the defendant, the 1983 Ford Laser
1.5 Sedan involved, or its equivalent in kind or in cash, as of the date of the said
decision (March 25, 1988), to pay him the damages specified in the said decision, to
the extent of the value of the replevin bond which is P210,000.00, with costs against
the said Surety."14

Respondent Deputy Sheriff Jaime Del Rosario, by virtue of the order of execution pending appeal,
levied upon the properties of petitioner and garnished its funds with Far East Bank and United
Coconut Planters Bank on June 17, 1988. A few days thereafter, on June 22, 1988, petitioner filed a
petition for certiorari, with a prayer for preliminary injunction and/or restraining order, in respondent
court where it was docketed as CA-G.R. SP No. 14938. Petitioner sought therein the annulment of
the orders of the trial court dated June 3 and 6, 1988, the supplemental decision of June 7, 1988 and
the writ of execution issued in Civil Case No. 84-28188.

Significantly, even after the filing of the petition for certiorari with the appellate court, the trial court
acted on several motions filed either before or after said petition was instituted. On the same day of
the filing of said petition, an order was issued by the trial court supplementing its order of execution
pending appeal dated June 3, 1988 by ordering private respondent Orosa to file an additional bond
in the amount of P200,000.00. 15

An "Urgent Omnibus Motion for Reconsideration with Prayer for Restraining Order," dated June 24,
1988, was filed by the petitioner with the trial court, alleging that "there exists no good and valid
reasons to justify execution pending appeal against SICI considering that it is very solvent and any
final judgment against it would surely be satisfied." 16The motion was denied for lack of
merit on June 27, 1988.
Likewise, the trial court denied on July 6, 1988 the motion of therein plaintiff, dated June 20, 1988,
for the reconsideration of the special order of the court issued on June 3, 1988. 17

On July 11, 1988, upon an ex parte motion, the trial court directed the enforcement of the writ of
execution pending appeal against therein plaintiff FCP Credit Corporation alone. 18 Later, on
August 5, 1988, another order was issued this time directing its enforcement
against petitioner. 19 Petitioner moved for the reconsideration of said order and
in the hearing of said motion, its counsel adduced additional arguments in
support thereof. The court was informed that its application for a writ of
injunction was already submitted for resolution by the Court of Appeals. 20
Eventually, the application for a writ of injunction referred to by petitioner was granted by the Court of
Appeals on August 26, 1988. Nevertheless, the same writ was lifted and set aside when the petition
for certiorari was dismissed in a decision promulgated by respondent court on September 9, 1988 in
CA-G.R. SP No. 14938. 21 No grave abuse of discretion was found to have been
committed by the trial court in issuing the questioned orders.
Hence, this petition to set aside and annul the aforesaid decision of respondent court.
The rule is clear that where the judgment in an action is in favor of the party against whom the writ of
replevin was issued, he may recover damages resulting therefrom and the replevin bond required
under Section 2, Rule 60 of the Rules of Court may be held to answer for this purpose. The
procedure to hold the surety liable upon the replevin bond is provided for under Section 10 of the
same rule in relation to Section 20 of Rule 57. Compliance with the following requisites is essential:

... (1) the filing of an application therefor with the Court having jurisdiction of the
action; (2) the presentation thereof before the judgement becomes executory (or
before the trial or before appeal is perfected); (3) the statement in said application of
the facts showing the applicant's right to damages and the amount thereof; (4) the
giving of due notice of the application to the attaching creditor and his surety or
sureties and (5) the holding of a proper hearing at which the attaching creditor and
sureties may be heard on the application. These requisites apply not only in cases of
seizure or delivery under Rule 60, but also in cases of preliminary injunctions under
Rule 58, and receiverships under Rule 59.22

To avoid multiplicity of suits, all incidents arising from the same controversy must be settled in the
same court having jurisdiction of the main action. Thus, the application for damages must be filed in
the court which took cognizance of the case, with due notice to the other parties.

The timeliness of the application for judgment on the bond in this case, as well as the motion for
immediate execution, is apparent because it was filed before the appeal was perfected. The fact that
one of the parties had filed a notice of appeal does not perfect such appeal. An appeal is perfected
upon the lapse of the last day for all parties to appeal. 23

It should also be noted that the filing of the application for judgment on the bond by private
respondent Orosa was in the nature of a motion for reconsideration under Section l(c), Rule 37 of
the Rules of Court, which consequently had the effect of interrupting the period to appeal. 24 This
being so, the order holding in abeyance plaintiff 's notice of appeal was not
even necessary and was an apparent superfluity.
Petitioner nevertheless claims that there was failure to hold a proper hearing. Such requirement,
however, has been held to mean that "the hearing will be summary and will be limited to such new
defenses, not previously set up by the principal, as the surety may allege and offer to prove. The oral
proof of damages already adduced by the claimant may be reproduced without the necessity of
retaking the testimony, but the surety should be given an opportunity to cross-examine the witness
or witnesses if he so desires. 25 In the present case, as respondent court correctly
pointed out, petitioner did not allege and offer to prove any new defense not
previously set up by the principal. Furthermore, the grounds relied upon in its
opposition to the application requires no hearing for their proper consideration
by the courta quo, aside from the fact that the trial court adequately and
particularly resolved them in its order of June 6, 1988.
If petitioner really had additional defenses, if should have asked for the opportunity to present the
same when the motion to dismiss the application for judgment on the bond was denied. This is also
true with respect to the cross-examination of the witnesses which petitioner is now belatedly asking
for.While there was no one to cross-examine during the hearing of the application for judgment on
the bond because of private respondent's absence. Petitioner could have invoked and insisted on
such right. Further, even if private respondent had appeared during the hearing, it could reasonably
be expected that no witnesses would be presented since the application for judgment on the bond
relied mainly on the same grounds that were already presented in court and were subject of the trial
on the merits, or were at least already of record. To repeat, had petitioner been sincere in the stance
that it now takes to create an issue, it should have demanded its right to cross-examine such
witnesses as it was minded to. As it turned out, the opportunity to so demand was present but
petitioner did not care to do so. Instead, it preferred to stick to its stand that the application should be
denied for failure of respondent Orosa to appear during the hearing. The petitioner should, therefore,
suffer the consequences of its inexplicable inaction and conscious omission.

Independent of the foregoing considerations, neither does the petitioner have the right to question
the "supplemental judgment" of the trial court. As already stated, the application for judgment on the
bond was in the nature of a motion for reconsideration, hence the resolution thereof constitutes a
final and appealable order. Appeal being the proper and then available remedy, the original action
for certiorari does not lie and cannot substitute for the remedy of appeal that was thereafter lost.

We cannot, however, sanction the execution pending appeal which was authorized in this case. The
order for advance execution must be struck down for lack of the requisite good reasons therefor. It is
already settled that the mere filing of a bond does not warrant execution pending appeal. To
consider the mere filing of a bond a good reason would precisely make immediate execution of a
judgment pending appeal routinary, the rule rather than the exception. 26

The alleged imminent danger of insolvency of plaintiff FCP Credit Corporation does not also
constitute a good reason for immediate execution. In the aforecited Philippine National Bank case,
we ruled that where there are two or more parties who are held to be solidarily or subsidiarily liable
for the judgment account, the insolvency of one will not justify immediate execution where the others
are capable of paying the obligation. The obligation of petitioner surety company and the plaintiff
corporation in the case at bar is in solidum. Their agreement states that the principal and the surety
therein jointly and severally bound themselves "in the sum of TWO HUNDRED TEN THOUSAND
PESOS ONLY (P210,000.00) Philippine Currency for the prosecution of the action, for the return of
the property to defendant, if the return thereof be adjudged, and for the payment ... of such sum as
may in the cause be recovered against the plaintiff, and costs of the action." 27

IN VIEW OF THE FOREGOING, the order of the trial court, dated June 3, 1988, ordering the
issuance of a writ of execution pending appeal, as well as the other orders for its implementation,
are hereby ANNULLED and SET ASIDE. In all other respects, the decision of respondent Court of
Appeals is AFFIRMED.

SO ORDERED.

Carlos vs Sandoval (supra)

G.R. No. 73559-62 March 26, 1990

THE HEIRS OF THE LATE SANTIAGO MANINGO NAMELY: PIOGUITA C. VDA. DE MANINGO,
JANNILDA C. MANINGO, MARY LOU C. MANINGO, and MINORS: SANTIAGO C. MANINGO
JR., CORAZON C. MANINGO, CHRISTINE C. MANINGO, ENGELBERT C. MANINGO (ALL
REPRESENTED IN THIS PETITION BY THEIR MOTHER, PIOGUITA C. VDS. DE
MANINONGO), petitioners,
vs.
INTERMEDIATE APPELLATE COURT, NEVILLE V. LAMIS ENTERPRISES and NEVILLE V.
LAMIS, respondents.

MEDIALDEA, J:
This is a petition for review on certiorari seeking the reversal of the decision rendered by the
Intermediate Appellate Court (now Court of Appeals) on November 18, 1985, dismissing the
following cases: 1) AC G.R. SP No. 03725, entitled, "The Heirs of the late Santiago Maningo, et al.
vs. Hon. Adolfo Alba, as Presiding Judge of RTC Davao, et al., 2) AC-G.R. SP No. 04480 entitled,
Pioquita Vda. de Maningo as Administratrix of the Estate of Santiago Maningo vs. Judge Jose R.
Nolasco of the RTC, Tagum, Davao, et al., 3) AC-G.R. SP No. 04517 entitled, "Paramount Insurance
Corporation vs. Hon. Jose R. Nolasco, et I al., and 4) AC-G.R. SP No. 04377 entitled, "Pioquita Vda.
de Maningo vs. Hon. Judge Adolfo Alba, et al."

The antecedent facts in the aforestated cases as found by the I respondent appellate court are as
follows:

AC-G.R. SP No. 03725

On November 16, 1979, Neville Lamis Enterprises through its proprietor Neville Lamis, filed a
complaint for specific performance with damages against Santiago Maningo before the Court of First
Instance (now Regional Trial Court) of Pasig, Rizal, docketed as Civil Case No. 35199, to enforce a
Memorandum Agreement entered into by them.

During the pendency of the case, on December 8, 1979, Maningo instituted a complaint against
Lamis for collection of a sum of money with preliminary attachment before the RTC-Tagum, Davao,
docketed as Civil Case No. 1395. The following day, on December 9, 1980, the court issued a writ of
preliminary attachment upon a bond of P100,000.00 issued by Paramount Insurance Corporation.
As a consequence thereof, the Deputy Provincial Sheriff levied upon certain personal properties of
Lamis. The latter filed an ex-parte manifestation with the Provincial Sheriff for the suspension of the
levy on the ground that Civil Case No. 1395 was merely a duplicity of Civil Case No. 35199 which
was pending in the CFI (now RTC) of Pasig. Lamis further moved for the dismissal of Civil Case No.
1395 based on lis pendens and for improper venue. The court denied the motion in an order dated
April 2, 1981.

Lamis went on certiorari to this Court in a petition filed on July 1, 1981 docketed as G.R. No. 57250.
On October 30,1981, We rendered a decision granting the petition and ordering the dismissal of Civil
Case No. 1395. Said decision became final on April 8, 1982.

Four months later, on August 2, 1982, Lamis filed an urgent ex-parte motion in Civil Case No. 1395
for the confiscation of Maningo's attachment bond. The lower court, on October 18, 1982, issued an
order setting for hearing the issue of damages.

At the said hearing for the reception of evidence on damages suffered by Lamis, both the surety,
Paramount Insurance Corp. and Maningo objected to the hearing.

On December 22, 1 982, Maningo filed a petition for certiorari and prohibition with this Court,
docketed as G.R. No. 62733, alleging the following: That Lamis failed to comply with Section 20,
Rule 57, which provides that the application for damages must be made before entry of judgment in
the subject case; that Lamis filed his application for damages only after final judgment; that Lamis'
claim for damages could not by law, exceed the attachment bond; and that in G.R. No. 57250, Lamis
is not entitled to the possession of the tractor unit, which is one of properties attached. The petition
was dismissed by this Court in a resolution dated February 28, 1983, for lack of merit. This became
final on May 4, 1983.
In view of the dismissal, Lamis filed a motion for the execution of this Court's resolution in G.R. No.
62733 and a motion in Civil Case No. 1395 to be allowed to present evidence for the confiscation of
Maningo's attachment bond and for damages.

However, on August 14, 1983, Santiago Maningo died intestate and his counsel moved for the
dismissal of Case No. 1395 on the ground that the heirs are no longer interested in the prosecution
of the case.

The lower court, on December 28, 1983, denied the above motion and set the case for hearing.

In the meantime, on March 6,1984, the court issued an order requiring the sheriffs to take into
custody in favor of Lamis1 all attached properties still unreleased by Maningo.

On March 13, 1984, the intestate proceedings of the late Santiago Maningo began in the RTC of
Davao, docketed as Sp. Proc. 248.

On May 24, 1984, the lower court issued two orders: 1) an order requiring the surety to pay Lamis
the sum of P100,000.00 as the total claim for damages by reason of the unlawful attachment; and 2)
another order for the issuance of a writ of execution against the surety. The hearing for the reception
of evidence against the heirs was reset to another date.

Hence, on July 10, 1984, the heirs of Manigno filed with the Intermediate Appellate Court, a petition
for certiorari, mandamus, with preliminary injunction dockected was AC-G.R. SP No. 03725, seeking
to set asice all the orders of th lower court. Upon dismissal thereof, the present petition was filed by
the heirs of Santiago Manigno.

AC-G.R. No. 04480

On December 11, 1981, the late Santiago Maningo filed with the Regional Trial Court of Tagum,
Branch I, Davao City, a complaint for Foreclosure of Chattel Mortgage, interest, damages and
attorney's fees with prayer for attachment against Neville Lamis Enterprises, Neville Lamis and
others, docketed as Civil Case No. 147 (Santiago Maningo (deceased), as substituted by his heirs
thru Special Administratrix, Mrs. Pioquita Vda. de Maningo v. Neville Y. Lamis Enterprises and
Neville Lamis). The complaint was later amended to Replevin, damages and attorney's fees.

On December 21, 1981, the court issued an order for the seizure of a bulldozer, upon a replevin
bond of P340,000 by Paramount Insurance Corporation.

On May 25,1982, Lamis moved for the dismissal of the aforesaid Civil Case No. 147 and to cite
Maningo for contempt on the ground of litis pendencia or multiplicity of suits; that the said case is
barred by the pendency of his Civil Case No. 35199 then pending with Regional Trial Court of Pasig
and also by the prior judgment of this Court in G.R. No. 57250 dismissing Civil Case No. 1395 filed
by Maningo.

On July 2, 1982, Lamis filed with this Court a petition for certiorari and prohibition, docketed as G.R.
No. 61419, to dismiss Civil Case No. 147

One and a half years later, on June 11, 1984, Lamis filed a motion in Civil Case No. 147 for the
reception of evidence on the damages he sustained by reason of the issuance of the writ of replevin.
Despite objections by the surety, Paramount Insurance Corporation, the lower court granted the said
motion, and in an - order dated September 20, 1 984, it required the Estate of Maningo to pay to
Lamis, compensatory damages by reason of the unlawful issuance of replevin.

The Administratrix of Maningo's estate filed a petition for certiorari with preliminary injunction with
this Court seeking the dismissal of Lamis' action for damages in the lower court. We, however,
referred the case to the Intermediate Appellate Court for proper determination docketed as AC-G.R.
SP No. 04480.

SP-04377

In the meantime, in an order dated September 20, 1984, the Regional Trial Court in Civil Case No.
147 awarded Lamis, et al. the amount of P7,677,177.00 as compensatory damages by reason of the
issuance of the writ of replevin. On September 21, 1984, writs of execution were issued by the court
and the cash deposits of Santiago Maningo, now deceased, with the Philippine National Bank,
Davao Branch and the Bank of the Philippine Islands, Davao Branch, were ordered garnished. On
September 25,1984, Lamis filed an ex-parte application in Special Proceedings No. 248, for the
release of Maningo estate's garnished deposits which was granted, and an order was issued
directing the banks concerned to release to the sheriff the cash deposits of Maningo. Prior to the
issuance of the above-stated order, however, the court had authorized the Special Administratrix of
Maningo's estate to withdraw in cash from the Philippine National Bank, Davao Branch, the amounts
of P654,963.03 and P90,829.45. On a motion for clarification, the court issued an order on
September 26, 1984, setting aside its previous order allowing the special administratrix to withdraw
the amount from the bank, and declared the branch manager and branch attorney of PNB in
contempt of court. Aggrieved, Pioquita Vda. de Maningo, special administratrix

SP-04517

On the other hand, on September 21, 1984, the surety, Paramount mount Insurance Corporation,
appealed to the respondent appellate court from the order of the trial court making it liable for the
sum of P340,000.00. On the same date, the trial court issued a writ of execution of Civil Case No.
147.

The surety, Paramount Insurance Corporation, filed with this Court a petition for certiorari, prohibition
with preliminary injunction against Judge Jose R. Nolasco of the Regional Trial Court of Tagum,
Davao and against Lamis. We referred the case to the Intermediate Appellate Court (now Court of
Appeals) on October 8, 1984. On November 18, 1985, the Intermediate Appellate Court (now Court
of Appeals) rendered judgment on the above four cases, namely, SP-03725, SP-04480, SP-04517
and SP-04377, the dispositive portion of which states:

WHEREFORE, premises considered, the petitions in SP-03725, SP-04480 and SP-

04517 are all dismissed with costs against the qqqw petitioners, while in SP-04377
including the PNB's intervention thereon, the petition is also dismissed insofar as the
orders of Judge Adolfo Alba dated September 25 and 26,1984 in SP Proc. No. 248
are concerned. However, his (Judge Alba) orders dated September 29, 1984,
October 1, 1984, October 2,1984 and October 3,1984 are hereby annulled and set
aside. No costs.

SO ORDERED.(p. 88, Rollo)

Hence, the present petition, which was filed on February 19, 1986. We issued a temporary
restraining order on February 20, 1986, against the implementation of the orders of the trial court on
the award of damages, and the decision of the Intermediate Appellate Court (now Court of Appeals).
For Us to consider is the following error assigned by petitioners:

THE RESPONDENT HONORABLE INTERMEDIATE APPELLATE COURT, WITH

ALL DUE RESPECT, HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS AND/OR SANCTIONED SUCH
DEPARTURE OF THE LOWER COURT WHEN IT AFFIRMED THE
PROCEEDINGS CONDUCTED BY THE LOWER COURTS (RTC-TAGUM, DAVAO,
BRANCH II IN CIVIL CASE NO. 1395 AND RTC-TAGUM, DAVAO BRANCH I IN SP.
CIVIL CASE NO. 147), IN ALLOWING RESPONDENT LAMIS TO PRESENT
EVIDENCE ON ALLEGED DAMAGES SUSTAINED AND IN AWARDING
DAMAGES, EVEN LONG AFTER THE ABOVEMENTIONED CASES HAS BEEN
ORDERED DISMISSED BY THIS HONORABLE SUPREME COURT WITHOUT
AWARD OF DAMAGES. (pp. 33-34, Rollo)

Petitioners contend that Civil Case No. 1395 was ordered dismissed by Us in G.R. No. 57250 upon
petition of private respondent Lamis; and that said decision became final on April 8, 1982 long
before the latter applied for damages sustained by reason of the unlawful attachment. Anent Civil
Case No. 1395, the respondent appellate court, in AC-G.R. SP No. 03725, made the following
findings:

Actually, this matter had already been threshed out by the deceased Santiago
Maningo to the Supreme Court when (he) filed a petition for certiorari and prohibition
on December 22, 1982 which was docketed therein as G.R. L-62733. Unfortunately,
the Supreme Court, in a minute resolution dated February 28,1983 dismissed the
aforesaid petition, (see p. 103, Annex L 03725) which resolution became final on
May 4,1983. (p. 77, Rollo)

We agree with the aforequoted findings of the appellate court. The principle of resjudicata is
applicable herein. Its requisites are present in the instant case, namely: 1) the presence of a final
former judgment; 2) the former judgment was rendered by a court having jurisdiction over the subject
matter and the parties; 3) the former judgment is a judgment on the merits; and 4) there is between
the first and second actions, Identity of parties, of subject matter and of cause of action (Pantranco
North Express, Inc. v. NLRC, No. 64152, December 29, 1983, 126 SCRA 526).

We find that Our Resolution in G.R. No. 62733 on February 28, 1983 is a bar to SP No. 03725
subject of this petition for review. G.R. No. 62733 is a petition for certiorari filed by Maningo, who is
now succeeded by petitioners herein, questioning the order of the lower court granting the
application for damages of Lamis in Civil Case No. 1395, and alleging: that Lamis failed to comply
with Rule 57, Sec. 20 insofar as the application for damages must be made before entry of judgment
in the subject case; and that Lamis made such application only after final judgment. These are the
very same issues and contentions raised by the heirs in the present petition with respect to AC-G.R.
SP No. 03725.

It is worthy to note that G.R. No. 62733 was dismissed with finality by this Court on February 28,
1983 and entry of final judgment was made on May 4, 1983. While contained in a minute resolution,
the dismissal was an adjudication on the merits of the case and constituted a bar to a relitigation of
the issues raised therein under the rules of resjudicata (Commercial Union Assurance Company
Limited v. Lepanto Consolidated Mining Company, L-43342, October 30,1978,86 SCRA 79; Sy v.
Tuvera, No. 76639, July 16, 1987, 152 SCRA 103). A final judgment on the merits is conclusive as to
matters put in issue and actually determined by the court, when they are raised in again in a
subsequent litigation between the same parties, even though it is irregular or erroneous. Hence,
whether Our resolution in petition in G.R. No. 62733 is right or wrong, is of no importance; herein. As
long as the judgment in that case had become final, the issues that were litigated therein cannot be
reopened by the parties in this subsequent petition, whether erroneously decided or not.

With respect to AC-G.R. SP No. 04480, petitioners allege that Civil Case No. 147 was also ordered
dismissed on December 15, 1982 by this Court upon petition of private respondent Lamis in G.R.
No. 61419; and that the said dismissal became final on March 3,1983 long before Lamis applied for
damages sustained by reason of unlawful replevin.

The respondent appellate court, on this matter, ruled, interalia:

Thus, after the Supreme Court in a decision rendered on December 15, 1982 in G.R.
L-61419, has ordered for (sic) the dismissal of Civil Case No. 147, the discharge of
the writ of replevin issued in the aforesaid civil case is likewise necessarily included
therein. Hence, the respondent judge has all the reason to order the return of the
property subject of the replevin order and to proceed in hearing and adjudicating
whatever damages the defendants (Lamises) may have suffered by reasons thereof.
(p. 79, Rollo)

We find the latter portion of the ruling of the appellate court as aforequoted, incorrect.

Section 1 0 of Rule 60 of the Rules of Court provides that in the recovery of damages against the
bond posted by the applicant in replevin cases, the procedure shall follow that what is laid down in
Section 20 of Rule 57, which reads:

Sec. 20. Claim for damages on account of illegal attachment. If the judgment on the
action be in favor of the party against who attachment was issued, he may recover
upon the bond given or deposit made by the attaching creditor, any damages
resulting from the attachment. Such damages may be awarded only upon application
and after proper hearing, and shall be included in the final judgment. The application
must be filed before the tirial or before appeal is perfected or before the judgment
becomes executory, with due notice to the attaching creditor and his surety or
sureties, setting forth the facts showing his right to damages and the amount thereof

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

As may be gathered from Section 20, Rule 57, the claim for damages resulting from wrongful seizure
of personalty property must be filed in the same action in which the writ attachment or the writ of
replevin was issued; otherwise, it is bar' red (Tan Suyco v. Javier, 21 Phil. 82; Nueva-Espaa v.
Montelibano, 58 Phil. 807). It may be presented, before trial in the answer by way of counterclaim
(Medina v. Maderera del Norte de Catanduanes 51 Phil. 240). In the discretion of the court, it may
also be made at any other time even after the rendition of final judgment if the court has still
jurisdiction over the case (Visayan Surety & Insurance Corp. v. Pascual, 85 Phil. 779). Hence, if the
application for damages is not made in compliance with the procedure laid down in the rules, even
the surety on the bond is relieved from liability therefor. The remedy provided by law isexclusive and
by failing to file a motion for the determination of 1 the damages on time and whilejudment is still
under the control of the court, the claimant loses his right to damages (Santos v. Mair, 36 phil. 350;
Japco v. The City of Manila, 48 Phil. 851; Cruz v. Manila Surety & Fidelity Co., Inc., et al., 92 Phil.
699).

In the case at bar, there is no showing that respondent Lamis had timely filed his claim for damages
arising from the wrongful issuance of the writ of replevin in Civil Case No. 147, or prior to dismissal
on December 15, 1982, of the replevin case, upon Lamis' petition for certiorari. It was only years
later on June 11, 1984 that Lamis applied for damages on the replevin bond, after the case had long
been dismissed. The trial court no longer had jurisdiction and control over the case when it awarded
damages after it was dismissed and thrown out of court in the certiorari case filed by Lamis himself.
Thus, the judgment of the y trial court awarding damages against the estate of Maningo in the
amount of P7,677,177.00 in the replevin case is null and void. Logically, the petitioners' surety,
Paramount Insurance Corporation, should be released from its liability under the bond.
Notwithstanding, Our dismissal of the latter's petitionseeking review on certiorari of the same
decision of the respondent dent appellate court on July 2, 1986, upholding the award of damages to
Lamis, We release said surety from liability based on the same principles We have pronounced in
the foregoing discussion.

ACCORDINGLY, the petition is hereby GRANTED in part, and the judgment of the Intermediate
Appellate Court (now Court of Appeals) dated November 18, 1985 with respect to ACCUSED G.R.
SP No. 04480, which upheld the award of damages by the trial court in Civil Case No. 147, is
REVERSED and SET ASIDE. In all other respects, the petition is DENIED and the judgment of the
respondent appellate court is AFFIRMED. The temporary restraining order issued on February 20,
1986, is lifted.

SO ORDERED.

G.R. No. L-6436 June 30, 1954

OFRECINO T. SANTOS, petitioner,

vs.
THE COURT OF APPEALS, ET AL., respondents.

PARAS, C.J.:

On May 20, 1950, Ofrecino T. Santos (hereinafter to be referred to as petitioner) filed in the Court of
First Instance of Cotabato an action for the recovery of the sum of P1,628 against Teodulo M. Cruz
and Valentin C. Garcia (Civil Case No. 241). The petitioner secured a writ of preliminary attachment
which was levied upon a tractor which, though believed by the petitioner to belong to the defendants
in Civil Case No. 241, in fact was owned by the Philippine Reconstruction Corporation Inc.
(hereinafter to be referred to as respondent), which in due time filed a third party claim. The
petitioner filed an amended complaint including the respondent as a defendant, but upon motion filed
by Teodulo M. Cruz and Valentin C. Garcia, Civil Case No. 241 was dismissed by the Court of First
Instance of Cotabato for lack of jurisdiction, the amount involved being less than P2,000. The
petitioner filed a similar action in the Justice of the Peace Court of Buayan, Cotabato, against the
respondent as sole defendant, wherein the petitioner was awarded the sum of P1,638.10, with
interest and costs, but this decision is still the subject matter of a pending certiorari proceeding in the
Court of First Instance of Cotabato instituted by the respondent.

On May 9, 1951, the respondent filed in the Court of First Instance of Manila Civil Case No. 13778
against the petitioner, for damages resulting from the levy of its tractor under the writ of attachment
issued in Civil Case No. 241. Paragraphs III and VII of the respondent's complaint in Civil Case No.
13778 read as follows:
 III

That on or about the month of September, 1950 and in connection with the execution of a
preliminary writ of attachment secured by the herein defendant Ofrecino T. Santos in Civil
Case No. 241 of the Court of First Instance of Cotabato entitled Ofrecino T. Santos,
plaintiff vs. Teodulo M. Cruz and Valentin C. Garcia, defendants, the above-named
defendants conspiring, confabulating and conniving with one another procured and caused
to be attached a certain Caterpillar D-8 tractor of herein plaintiff who was not a party in said
case and that defendants herein fully knowing that the said tractor does not belong to any of
the defendants Teodulo M. Cruz and Valentin C. Garcia in said Civil Case No. 241 of the
Court of First Instance of Cotabato;

VII

That due to the said wrongful and malicious attachment levied by the herein defendants on
plaintiffs' tractor and their subsequent refusal to release the same from attachment as above
stated plaintiff was consequently forced to violate its contractual undertaking with a certain
Mr. Tomas Gonzales as stated in the sworn third party claim so that it was compelled to pay
a liquidated damages in the sum of Three Thousand Pesos (P3,000) aside from having lost a
sure income from rent on said tractor in the sum of One Thousand Five Hundred Pesos
(P1,500);

The other necessary details are recited as follows in the decision of the Court of
Appeals1 promulgated on October 30, 1952 in CA-G.R. No 9925-R, Ofrecino T. Santos, petitioner,
vs. Philippine Reconstruction Corporation, Inc., and the Honorable Demetrio B. Encarnacion, Judge,
Branch I, Court of First Instance of Manila, respondents:

On June 10, 1951, petitioner (defendant in Civil Case No. 13778 of Manila) was duly
summoned to answer the complaint filed in said Civil Case. A motion to dismiss, filed by
defendant's counsel, was received on June 23, 1951, in the Court of First Instance of Manila.
On the other hand, counsel for plaintiff Philippine Reconstruction Corporation (now
respondent) filed on July 12, 1951, an ex-parte motion, praying that defendant Ofrecino T.
Santos was declared in default on the ground that his motion to dismiss does not contain a
notice for hearing as provided in Rule 26 of the Rules of Court, and therefore not a valid one.
Copy of said order was received by defendant's counsel on August 2, 1951. On August 26th,
plaintiffs counsel moved that the aforesaid Civil Case No. 13778 be set for hearing. In his
turn, counsel for defendant Ofrecino T. Santos filed on September 1st a petition praying that
the order of default dated July 23rd be set aside; that his motion to dismiss be given due
course, either by sustaining or denying the same; and that if denied, defendant be allowed to
file his answer.

By virtue of an order dated February 12, 1952, the case was set for hearing on February
28th, and on the following day decision was rendered in favor of the plaintiff and against the
defendants, ordering the later to pay the sum of P4,500 with legal rate of interest from the
date of the filing of the complaint and to further pay the sum of P1,000.00 as attorney's fees
and costs of the suit. A copy of this decision was on March 7, 1952, sent by registered mail
to Ofrecino T. Santos' counsel who received the same in March 17th. Consequently, on April
5, 1952, defendant Ofrecino T. Santos, thru his counsel, moved for the reconsideration of the
aforesaid decision, to which motion counsel for the plaintiff filed his opposition on April 20,
1952. On June 11, 1952, said motion for reconsideration was denied.
Ofrecino T. Santos now comes before us as petitioner, alleging that the respondent court committed
a grave abuse of discretion when, as defendant in the aforesaid Civil Case No. 13778, he was
arbitrarily declared in default; and when it declared his motion to dismiss not a valid one. Petitioner
further claims that the respondent court again committed a grave abuse of discretion when, instead
of acting upon his petition (Annex "A") for relief from the order of default, it set the case for hearing a
proceeded to hear plaintiff's evidence and rendered a decision. It is also alleged by petitioner that
the Court of First Instance of Manila acted without jurisdiction, the cause of action in Civil Case No.
13778 having arisen from a supposed wrongful attachment ordered by the Court of First Instance of
Cotabato in Civil Case No. 241, and for that reason, that the latter court has exclusive jurisdiction to
determine whether its legal processes are wrongful or not; and even granting that the Court of First
Instance of Manila had proper jurisdiction, the particular cause of action in said Civil Case No. 13778
is banned by the decision of the Justice of the Peace Court of Buayan, Cotabato.

From the decision of the Court of Appeals dismissing his petition for certiorari, the petitioner has
interposed the present appeal by way of certiorari, assigning the following alleged errors:

1. The Court of Appeals erred in finding the motion to dismiss dated June 19, 1951 in Civil
Case No. 13778 of Manila as no motion at all.

2. The Court of Appeals erred in sustaining the ruling of the Court of First Instance of Manila
that Ofrecino T. Santos was in default in Civil Case No. 13778.

3. The Court of Appeals erred in finding that the petition for relief from order dated August
28, 1951 was "impliedly overruled when the respondent court set Civil Case No. 13778 for
hearing, received plaintiff's evidence and finally rendered decision therein."

4. The Court of Appeals erred in holding Ofrecino T. Santos under estoppel to raise the
"issue of jurisdiction."

5. The Court of Appeals erred in sustaining a decision that was null and void, emanating as it
did from a court which had no jurisdiction to try Civil Case No. 13778.

Without deciding whether the petitioner's motion to dismiss filed in Civil Case No. 13778 was a mere
scrap of paper for lack of notice of hearing, it is clear that he could and should have appealed from
the decision on the merits rendered therein by the Court of First Instance of Manila, of which he was
duly notified, raising in said appeal the propriety of the ruling of default against him, the failure of the
trial court to expressly dispose of his petition for relief, and the principal question of jurisdiction. It is
elementary that certiorari will not lie where the remedy of appeal is available.

On the issue of jurisdiction, it is to be recalled that, when respondent's tractor was levied upon, it
was not a party in Civil Case No. 241, and although an amended complaint was filed, no new writ of
attachment was issued so as to cover respondent's properties. It is also significant that Civil Case
No. 241 was dismissed by the Court of First Instance of Cotabato for lack of jurisdiction. We have no
hesitancy in declaring that the Court of First Instance of Manila correctly took cognizance of Civil
Case No. 13778, because the respondent sought damages, not on the allegation that the writ of
attachment was illegally or wrongfully issued by the Court of First Instance of Cotabato in Civil Case
No. 241, but on theory that said writ was caused by the petitioner to be levied upon the tractor of the
respondent which was not a party defendant. The filing of the amended complaint did not cure the
defect, since the seizure continued to be in virtue of the original writ, none having been issued under
the amended complaint.
The petitioner is invoking the following pronouncement in our decision in Cruz vs. Manila Surety and
Fidelity Co., Inc., et al., 49 Off. Gaz. (3) 964; 92 Phil. 699:

The procedure for recovery of damages on account of the issuance of a writ of attachment,
injunction, receivership, and replevin proceedings, as interpreted in the cases adverted to,
requires that the claim for damages should be presented in the same action which gave rise
to the special proceeding in order that it may be included in the final judgment of the case,
and it cannot be the subject of a separate action. The philosophy of the ruling seems to be
that the court that had acted on the special proceeding which occasioned the damages has
the exclusive jurisdiction to assess them because of its control of the case. This ruling is
sound and tends to avoid multiplicity of action.

The citation is not controlling, for the reason that, apart from the circumstance that, as already
stated, the respondent has never claimed that the writ of attachment was wrongfully issued in Civil
Case No. 241, it appears that the latter case was dismissed for lack of jurisdiction, and no claim for
damages could therefore properly have been presented in said case, because the Court of First
Instance of Cotabato, thus lacking jurisdiction, was in fact prevented from rendering any final
judgment therein which could include such damages. Avoidance of multiplicity of suite presupposes
the competence of the court in the first or earlier case. Wherefore, the appealed decision is affirmed,
and it is so ordered with costs againsts the petitioner.

G.R. No. L-23868 October 22, 1970

ZACARIAS C. AQUINO, petitioner,

vs.
FRANCISCO SOCORRO and COURT OF APPEALS, respondents.

CASTRO, J.:.

On February 14, 1964 the Court of Appeals, upon petition of Francisco Socorro in CA-G.R. 33560-
R,1 issued a writ of preliminary injunction in his favor upon his posting a P1,000 bond. The writ of
preliminary injunction, among others, restrained Zacarias Aquino "from entering, cutting, hauling, selling
and/or exporting logs or other forest products from the forest area" subject of litigation. Aquino, however,
filed a counterbond in the amount of P2,000, effecting the immediate dissolution of the writ.

The Court of Appeals, on June 29, 1964, dismissed Socorro's petition re the main action, for lack of
jurisdiction to entertain the same. Socorro subsequently appealed the decision of the appellate court
to this Court. We affirmed the appellate court's decision in a resolution dated December 24, 1964 in
case G.R. L-23608.

On July 15, 1964, before the appellate court's decision dismissing Socorro's petition became final,
Aquino filed with the appellate court his claim for damages in the amount of P199,000 on account of
the wrongful issuance of the writ of preliminary injunction. The appellate court denied Aquino's claim,
for want of bad faith and malice on the part of Socorro in filing his petition and securing the issuance
of the writ of preliminary injunction. Aquino's subsequent motion for reconsideration was denied.

Hence, the present petition for certiorari to review the resolution of the Court of Appeals denying his
claim for damages.

Aquino contends that the respondent appellate court erred in denying his claim for damages on the
ground of want of bad faith and malice on the part of the respondent Socorro in filing the petition
for certiorari re the main case and securing the issuance of the writ of preliminary injunction. He
invokes the provisions of Section 9, Rule 58 in relation to Section 20, Rule 57, of the Rules of Court.
Section 9, Rule 58 recites:.

Judgement to include damages against party and surities. Upon the trial the
amount of damages to be awarded to the plaintiff, or to the defendant, as the case
may be, upon the bond of the other party, shall be claimed, ascertained, and
awarded under the same procedure as prescribed in Section 20 of Rule 57.

Section 20, Rule 57 reads:.

Claim for damages on account of illegal attachment. If the judgment on the action
be in favor of the party against whom attachment was issued, be may recover, upon
the bond given or deposit made by the attaching creditor, any damages resulting
from the attachment. Such damages may be awarded only upon application and after
proper hearing, and shall be included in the final judgment. The application must be
filed before the trial or before appeal is perfected or before the judgment becomes
executory, with due notice to the attaching creditor and his surety or sureties, setting
forth the facts showing his right to damages and the amount thereof.

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

Aquino points out that the said provisions do not require a claimant who seeks to recover damages
on account of the wrongful issuance of a writ of preliminary injunction, to prove bad faith and malice
on the part of the party who obtained the issuance of the writ. To reinforce his contention, he invokes
the provisions of Section 4 (b) of Rule 58 of the Rules of Court. This rule, Aquino avers, makes the
party applying for an injunction liable for all damages sustained by the other party if the court finally
decides the party applicant as not entitled thereto. He maintains that, in the case at bar, the
dissolution of the writ of preliminary injunction by the respondent appellate court clearly
demonstrates that the respondent Socorro was not entitled thereto.

Socorro, on the other hand, plays for the dismissal of the present petition on the following grounds:
(1) The petitioner "refused to prosecute his claim for damages ... in the main action then already on
appeal to this Court;" (2) The petitioner "failed to state in his motion claiming for damages the facts
upon which his rights thereto are based;" (3) The petitioner, if "suing on the bond ... has no more
cause of action as the said bond had already been dissolved2 upon motion by the petitioner Aquino;" and (4) The
petitioner, if "suing beyond the bond ... failed to show, or there is no showing that the respondent Socorro," in filing his petition
for certiorari and securing the issuance of the writ of preliminary injunction, "was motivated by malice or bad faith."

The present case raises the question of whether Aquino's claim for damages on account of the
improvident issuance by the respondent appellate court of the writ of preliminary injunction should be
dismissed on the ground that he has failed to show or prove bad faith and malice on the part of the
respondent Socorro in obtaining the issuance of the writ of preliminary injunction.

In Pacis vs. The Commission on Elections,3 this Court made an extensive discussion of the principles
applicable to the recovery of damages caused through the improvident issuance of a writ of preliminary
injunction. This Court said that "damages sustained as a result of a wrongfully obtained injunction may be
recovered upon the injunction bond required to be filed with the court." The same provisions permitting
the issuance of the writ of preliminary injunction require the filing of a bond before the grant of the writ.
"The statutory undertaking of the bond is that it shall answer for all damages which the party to be
restrained may sustain by reason of the injunction if the court should finally decide that the plaintiff was
not entitled thereto. Malice or lack of good faith is not an element of recovery on the bond. This must be
so, because to require malice as a prerequisite would make the filing of the bond a useless formality."

Continuing, this Court said that "the dissolution of the injunction, even if the injunction was obtained
in good faith, amounts to a determination that the injunction was wrongfully obtained and a right of
action on the injunction bond immediately accrues." Thus, for the purpose of recovery upon the
injunction bond, "the dissolution of the injunction because of the failure of petitioner's main cause of
action" provides the "actionable wrong" for the purpose of recovery upon the bond.

This Court also stressed, in the same case, that "there is nothing in the Rules of Court which allows
recovery of damages other than upon the bond pledged by the party suing for an injunction. Section
9, Rule 58, limits recovery only upon the bond, and it specifically states that ... 'the amount of
damages to be awarded to the plaintiff, or to the defendant, as the case may be, upon the bond of
the other party, shall be claimed, ascertained, and awarded under the same procedure as prescribed
in Section 20 of Rule 57.' " Under this provision, the party restrained, if he can recover anything, can
recover only by reason of and upon the bond the only security and protection conceded to him by
the rules. Consequently, the rule limits the amount of recovery in a suit on an injunction bond to the
sum thus fixed, the amount measuring the extent of the assumed liability.

This Court also finds it necessary to restate the rule in Molina vs. Somes4 that "an action for damages
for the improper suing out of an injunction must be maintained upon the same principles which govern an
action for the wrongful bringing of an action." This rule, however, applies only when the party restrained
pursues his claim for damages not upon the injunction bond. In such a case where the party restrained
sues not on the injunction bond, the rules accord him no relief by way of a claim for damages unless he
can establish that the party applicant secured the issuance of the writ maliciously and without probable
cause. This Court stated that "... when the process has been sued out maliciously there may be a right of
action in favor of the defendant. But this right depends upon the law governing malicious prosecutions,
and has no relation to the claim for damages urged by the defendant in this case. ..." 5

Additionally, this Court, citing Palmer vs. Foley (71 N.Y. 106, 108), said:.

It seems that, without some security given before the granting of an injunction order,
or without some order of the court or a judge, requiring some act on the part of the
plaintiff, which is equivalent to the giving of security such as a deposit of money in
court the defendant has no remedy for any damages which he may sustain from
the issuing of the injunction, unless the conduct of the plaintiff has been such as to
give ground for an action for malicious prosecution.

In the case at bar, the record reveals that the petitioner Aquino, in the proceedings before the
respondent appellate court filed a counterbond in the amount of P2,000 and opposed the injunction
bond filed by the respondent Socorro on the ground of its insufficiency. In effect, those brought about
the immediate dissolution of the writ of preliminary injunction. Thus Aquino pursues his claim for
damages in the amount of P199,000 no longer upon the injunction bond in the amount of P1,000
filed by Socorro with the respondent appellate court. This being the case, applicable here is the
holding in Molina vs. Somes, supra, that an application for damages on account of the improvident
issuance of a preliminary injunction writ must be governed by the same principles applicable to an
action for the wrongful bringing of action. Before the respondent's liability can attach, it must appear
that he filed his petition forcertiorari re the main action and obtained the issuance of the writ of
preliminary injunction maliciously and without probable cause. These two essential requisites,
malicious prosecution and lack of probable cause, are neither alleged nor proved in this case before
us. Nothing in the record tends to establish the liability of the respondent Socorro.
ACCORDINGLY, the present petition for certiorari is hereby denied. No cost.

G.R. No. 71229 September 30, 1986

HANIL DEVELOPMENT CO., LTD., petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and M. R. ESCOBAR EXPLOSIVES ENGINEERS,
INC., represented by its General Manager, MANUEL R. ESCOBAR, respondents.

GUTIERREZ, JR., J.:

This is a petition for certiorari, mandamus, and prohibition, with prayer for mandatory injunction and
restraining order from the resolutions of the then Intermediate Appellate Court dated April 30, 1985
and June 20, 1985 in AC-G.R. No. 05055 entitled "Hanil Development Co., Ltd. v. M.R. Escobar
Explosives Engineers, Inc., represented by its General Manager, Manuel R. Escobar."

The present controversy has its origins in a complaint for recovery of a sum of money with damages
filed by private respondent Escobar Explosives Engineers, Inc., against petitioner Hanil
Development Co., Ltd., before the then Court of First Instance of Rizal, Branch XXXI, Pasig, Metro
Manila. The petitioner is a foreign corporation organized under the laws of the Republic of Korea and
doing business in the Philippines pursuant to the Corporation Code and the Foreign Investment Act.
The complaint docketed as Civil Case No. 35966 sought to compel the petitioner to pay for the
blasting services rendered by the private respondent in connection with the former's contract with the
Ministry of Public Highways to construct the 200 Km. Oro-Butuan Road Project in Mindanao.

The trial court, on April 16, 1983, rendered a decision in favor of the private respondent. The
petitioner was ordered to pay the private respondent the sum of P1,341,727.40 corresponding to the
value of the rocks blasted by the private respondent; ten percent (10%) of said amount as attorney's
fees and costs.

On May 6, 1982, the private respondent filed a petition for the issuance of a preliminary attachment.
The motion was set for hearing.

On May 13, 1982, the petitioner filed its notice of appeal and cash appeal bond with the trial court.

On May 24, 1982, the trial court issued an order granting the petition for the issuance of preliminary
attachment.

On May 26, 1982, the private respondent moved for the appointment of Deputy Sheriff Felix
Honoracion as special sheriff to serve the writ of attachment/garnishment.

Consequently, the order dated May 24, 1982 and the writ of attachment dated May 27, 1982 were
enforced by the respondents and the bank accounts of the petitioner were garnished and its
equipment attached.

The petitioner then filed a motion for reconsideration of the May 24, 1982 order. While this motion
was pending, the private respondent filed another motion, this time an "Ex-Parte Motion to Deposit
Cash" praying that an order be issued directing the Finance Manager of the National Power
Corporation (NAPOCOR) to withdraw available funds of the petitioner from the NAPOCOR and
deposit them with the clerk of court of the Court of First Instance of Rizal. This motion was granted in
an order dated June 29, 1982.
In view of this development, the petitioner filed with the then Intermediate Appellate Court a petition
for certiorari with prayer for prohibition, injunction and preliminary restraining order challenging the
orders dated May 24, 1982 and June 29, 1982 of the trial court. The case was docketed as CA-G.R.
No. 14512.

The appellate court temporarily restrained the enforcement of the challenged orders and after a
hearing issued a preliminary injunction enjoining the implementation of said orders upon the filing of
a P50,000.00 cash bond by the petitioner.

In a decision dated February 3, 1983, the appellate court granted the petition and declared the
challenged orders null and void, having been issued with grave abuse of discretion.

While the above-mentioned petition was pending before the appellate court and despite the writ of
injunction issued by it, other developments continued to unfold in the trial court.

In an order dated August 23, 1982, the trial court disapproved the petitioner's amended record on
appeal on the ground that it was "filed beyond the reglementary period and the extension granted."
The appeal was dismissed. The petitioner filed a motion for reconsideration of the dismissal while
the private respondent filed a motion for execution of judgment.

On October 19, 1982, the trial court issued an order denying the petitioner's motion for
reconsideration and at the same time granting the private respondent's motion for execution of
judgment.

The petitioner filed a petition for certiorari and mandamus with prayer for prohibition with the
Intermediate Appellate Court assailing the trial court's orders dated August 23, 1982 and October 19,
1982. The case was docketed as AC-G.R. No. 15050.

The appellate court granted the petition. The challenged orders were set aside and declared null and
void. Hence, the petitioner's appeal in Civil Case No. 35966 was reinstated and the trial court was
ordered to elevate the entire records of the case to the appellate court.

A petition for review of the decision in AC-G.R. No. 15050 was filed by the private respondent before
this Court, but was denied for lack of merit.

After transmittal of the records, the appellate court on February 11, 1985, sent a notice to the
petitioner to file appellant's brief within forty-five (45) days from receipt. The petitioner received the
notice on February 25, 1985.

On March 13, 1985, and within the reglementary period to file appellant's brief, the petitioner filed an
"Application for Judgment against Attachment Bond" and "Motion to Defer Filing of Appellant's Brief"
praying for a hearing before the appellate court so it could prove the damages it sustained as a
result of the illegal writ of attachment issued by the trial court. It wanted a judgment against the
attachment bond posted by the private respondent and its insurer Sanpiro Insurance Corporation to
be included in the final decision in the main case, Civil Case No. 35966, now pending before the
appellate court.

Acting on the petitioner's motions, the appellate court issued a resolution directing the private
respondent to comment on these motions.
The private respondent filed its "Comment" with a "Motion to Dismiss Appeal" for the petitioner's
alleged failure to file its appellant's brief.

In a resolution dated April 30, 1985, the appellate court denied the petitioner's application for
judgment against the attachment bond and the motion to defer filing of appellant's brief, granted the
private respondent's motion to dismiss the appeal, and dismissed the appeal. The petitioner filed a
motion for reconsideration but this was denied in a resolution dated June 20, 1985.

Hence, this petition.

In a resolution dated July 17, 1985, we issued a temporary restraining order to enjoin the
respondents from proceeding with the execution of the decision in Civil Case No. 35966.

The petitioner now asserts that the April 30, 1985 and June 20, 1985 resolutions were issued by the
appellate court with grave abuse of discretion.

The questioned April 30, 1985 minute resolution of the appellate court states:

Acting upon (1) the application for judgment against attachment bond, etc. filed by
counsel for defendant-appellant on March 13, 1985; (2) the comment thereto; (3) the
motion to dismiss appeal filed by counsel for plaintiff-appellee on April 24, 1985; and
the docket report dated April 25, 1985, the COURT RESOLVED: (a) to DENY the
application for judgment against attachment bond and the motion to defer filing of
appellant's brief; and (b) to GRANT the motion to dismiss appeal and to dismiss the
instant appeal.

The issues to be resolved in the instant petition are: (1) whether or not the petitioner's application for
judgment against the attachment bond and its motion to defer filing of appellant's brief were correctly
denied by the appellate court and (2) whether or not the same court rightly dismissed the petitioner's
appeal.

Anent the first issue, the petitioner contends that its application for judgment against the attachment
bond was pursuant to Section 20, Rule 57 of the Revised Rules of Court.

Section 20, Rule 57 of the Revised Rules of Court provides for the claim of damages on account of
illegal attachment, to wit:

Claim for damages on account of illegal attachment. If the judgment on the motion
be in favor of the party against whom attachment was issued, he may recover, upon
the bond given or deposit made by the attaching creditor, any damages resulting
from the attachment. Such damages may be awarded only upon application and after
proper hearing, and shall be included in the final judgment. The application must be
filed before the trial or before appeal is perfected or before the judgment becomes
executory, with notice to the attaching creditor and his surety or sureties, setting forth
the facts showing his right to damages and the amount thereof.

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

In the instant case, the initial writ of attachment issued by the trial court in the main case Civil
Case No. 35966 which is the subject of appeal was declared null and void by the appellate court in
CA-G.R. No. 14512. This present writ of attachment was issued and subsequently enforced after the
trial court's decision in Civil Case No. 35966 had been rendered and after the petitioner had already
perfected its appeal. The petitioner, therefore, argues that the application for judgment against the
attachment bond was properly lodged with the appellate court pursuant to Section 9, of the Judiciary
Reorganization Act of 1980 (Batas Pambansa Blg. 129) which grants the Intermediate Appellate
Court "power to try cases and conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues ... ." It contends that it is only in the appellate court that these
damages could well be ventilated because they occurred during the pendency of the appeal in AC-
G.R. No. 15050.

The petitioner's arguments are well-taken.

The application for judgment against attachment bond was filed to prove the damages sustained by
the petitioner as a result of the illegal writ of attachment issued by the trial court so that the judgment
against the attachment bond posted by the private respondent and its insurer could be included in
the final judgment of the main case. The assessment and award of such damages could not have
been made in CA-G.R. No. 14512 as alleged by the private respondent because the question therein
was whether or not the writ of attachment in Civil Case No. 35966 should have been issued.

The object was to set aside the preliminary attachment immediately. It was a preventive measure.

The private respondent, in its petition for writ of attachment filed with the trial court, posted an
attachment bond issued by the Sanpiro Insurance Corporation in the amount of P1,341,727.40, the
relevant portion of which reads:

WHEREFORE, WE, M.R. ESCOBAR EXPLOSIVE ENGINEERS as PRINCIPAL, and

the SANPIRO INSURANCE CORPORATION, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, as SURETY, in
consideration of the above and of the levying of said attachment, hereby jointly and
severally bind ourselves in the sum of PESOS: ONE MILLION THREE HUNDRED
FORTY ONE THOUSAND SEVEN HUNDRED TWENTY SEVEN & 40/100
(P1,341,727.40), Philippine Currency, under the condition that we will pay all the
costs which may be adjudged to said defendant/s and all damages which said
defendant/s may sustain by reason of the attachment, if the Court shall finally
adjudge that plaintiff/s was/were not entitled thereto.

Contrary to the claim of the private respondent, this writ of attachment issued by the trial court was
executed. The petitioner's equipment and bank accounts were garnished pursuant to the writ. In fact,
the private respondent's opposition to the petitioner's motion for reconsideration of the trial court's
order which issued the writ of attachment stated that the same should be denied for being moot and
academic "because the writ of attachment and/or garnishment have already been executed."

Considering that the writ of attachment was declared null and void, the petitioner had the right to ask
for whatever damages it may have incurred as a result of its issuance pursuant to Section 20, Rule
57 of the Revised Rules of Court.
Malayan Insurance Co., Inc. v. Salas (90 SCRA 252), lays down the procedure regarding claims for
damages against an illegal attachment. It states:

Under section 20, in order to recover damages on a replevin bond (or on a bond for
preliminary attachment, injunction or receivership) it is necessary (1) that the
defendant-claimant has secured a favorable judgment in the main action, meaning
that the plaintiff has no cause of action and was not, therefore, entitled to the
provisional remedy of replevin; (2) that the application for damages, showing
claimant's right thereto and the amount thereof, be filed in the same action before
trial or before appeal is perfected or before the judgment becomes executory; (3) that
due notice be given to the other party and his surety or sureties, notice to the
principal not being sufficient and (4) that there should be a proper hearing and the
award for damages should be included in the final judgment (Luneta Motor Co. v.
Menendez, 117 Phil. 970, 974; 3 Moran's Comments on the Rules of Court, 1970
Ed., pp. 54-56. See Cruz v. Manila Surety & Fidelity Co., Inc., 92 Phil. 699).

xxx xxx xxx

As may be gathered from section 20 of Rule 57, the application for damages against
the surety must be filed (with notice to the surety) in the Court of First Instance
before the trial or before appeal is perfected or before the judgment becomes
executory.

If an appeal is taken, the application must be filed in the appellate court but always
before the judgment of that court becomes executory so that the award may be
included in its judgment (Luneta Motor Co. v. Menendez, supra).

But it is not always mandatory that the appellate court should include in its judgment
the award of damages against the surety. Thus, it was held that where the
application for damages against the surety is seasonably made in the appellate
court, 'the latter must either proceed to hear and decide the application or refer 'it' to
the trial court and allow it to hear and decide the same' (Rivera v. Talavera, 112 Phil.
209, 219).

xxx xxx xxx

Note that under the second paragraph of section 20, Rule 57 of the present Rules of
Court, the damages suffered during the pendency of an appeal in a case where the
writs of attachment, injunction and replevin or an order of receivership were issued
should be claimed in the appellate court.

xxx xxx xxx

In the instant case, the application for judgment against the attachment bond was filed under the
following circumstances: (1) the writ of attachment was issued by the trial court after it had rendered
its decision and after the petitioner had already perfected its appeal; (2) the private respondent
posted a surety bond to answer for any damages that may be adjudged to the petitioner if the writ is
later found to be illegal; (3) the writ of attachment was declared illegal; and (4) the application for
judgment against the attachment bond was made with notice to the insurer, Sanpiro Insurance
Corporation.
Applying the principles laid down in the Malayan case to the circumstances surrounding the
application for judgment against attachment bond in this case, the appellate court committed grave
abuse of discretion in denying the application for judgment against attachment bond. The appellate
court's error in this case is more pronounced considering that under Section 9 of the Judiciary
Reorganization Act of 1980 (Batas Pambansa Blg. 129) the Intermediate Appellate Court is now
empowered to try cases and conduct hearings, receive evidence and perform acts necessary to
resolve factual issues in cases falling within its original and appellate jurisdiction. Certainly, the
amount of damages, if any, suffered by the petitioner as a result of the issuance of the illegal
attachment during the pendency of the appeal is a factual issue.

Moreover, the application for judgment against the bond seasonably filed by the petitioner in the
appellate court would avoid multiplicity of suits. We have earlier ruled that "the explicit provision of
Section 20 of Rule 57, Revised Rules of Court that the judgment against the surety should be
included in the final judgment is to avoid additional proceedings. (Cruz v. Manila Surety & Fidelity
Co., Inc. et al., 92 Phil. 699; (Japco v. City of Manila, 48 Phil. 851, 855 cited in Malayan insurance
Corporation v. Salas, supra).

Consequently, the appellate court also committed a grave abuse of discretion in denying the motion
to defer filing of appellant's brief. The petitioner filed this motion for the purpose of first settling the
issue on damages against the attachment bond so that such issue would be discussed and included
in the appellant's brief and ultimately in the final judgment thereby avoiding multiplicity of suits.

Needless to say, the appellate court should not have dismissed the petitioner's appeal.

We take notice of the circumstances under which the appellate court dismissed the appeal. Granting
that the petitioner's application for judgment against attachment bond was not meritorious, the
appellate court's dismissal of the appeal would still be unwarranted.

The record shows that in response to the petitioner's application for judgment against the attachment
bond and motion to defer filing of the appellant's brief which was filed on March 13, 1985 and within
the 45-day reglementary period to fife appellant's brief, the appellate court issued a resolution
directing the private respondent to comment on the motion within ten (10) days from notice. Upon
motion ' of the private respondent, the appellate court issued another resolution granting an
extension of ten (10) days from April 13, 1985 to file comment on the said motions of the petitioner.
The extension granted meant that the private respondent had until April 24, 1985 to file its comment.
In addition to the comment, the private respondent filed on April 24, 1985 a motion to dismiss appeal
contending that the petitioner had not filed its appellant's brief within the 45-day reglementary period.
Upon verification from its docket decision that no appellant's brief was filed as of April 25, 1985, the
appellate court dismissed the appeal.

Under these circumstances, the dismissal of the appeal by the appellate court due to the failure to
file the appellant's brief within the 45-day reglementary period counted from February 25, 1985 to
April 25, 1985 without allowing any interruption gave undue advantage to the private respondent.
This is so, because the private respondent after having been given ten (10) days from receipt of
notice to comment on the twin motions of the petitioner was again granted a ten-day extension or
until April 24, 1985 to file its comment thereto. This, in effect, removed a substantial number of days
from the 45-day period of the petitioner to file its brief, through no fault of its own.

The procedure adopted by the appellate court in interpreting the 45-day reglementary period to file
appellant's brief was unfair. When the appellate court issued the resolution requiring the private
respondent to comment on the petitioner's application for judgment against the attachment bond and
motion to defer appellant's brief the 45-day period should be deemed to have stopped, and the
period to commence again after denial of the motions.

The notice to "file appellant's brief within 45 days from receipt" was received by the petitioner on
February 25, 1985. The petitioner filed the application for judgment against the attachment bond and
motion to defer filing of appellant's brief on March 13, 1985. Thus, the petitioner filed its motions on
the 16th day after receipt of the notice to file appellant's brief and within the 45-day reglementary
period. On March 26, 1985, the appellate court issued its resolution directing the private respondent
to file its comment on the motions of the petitioner. At this point, counting from February 25, 1985 to
March 26, 1985, a total number of 29 days had lapsed. Hence, the petitioner still had 16 days within
the 45-day reglementary period to file its appellant's brief in the event that its motions were denied.

It is likewise the practise in the Court of Appeals, after granting an initial period of 45 days,
to routinely grant a motion for extension of another 45 days for the filing of an appellant's brief.
Considering the amount involved in this litigation and the nature of the defenses raised by the
petitioner, the appellate court was unduly severe when it peremptorily dismissed the appeal.

Therefore, we have to set aside the appellate court's action in simultaneously denying the
application for judgment against the attachment bond and the motion to defer the filing of appellant's
brief and in dismissing the appeal. Since the petitioner's two motions were denied on April 30, 1985,
the petitioner still had 16 days from notice of the denial to file its appellant's brief. In short, the
petitioner's 45-day period within which to file its appellant's brief had not yet lapsed when the
appellate court dismissed the appeal. The brief could have been filed or a motion for extension of
time requested.

WHEREFORE, the instant petition is GRANTED. The questioned resolutions dated April 30, 1985
and June 20, 1985 of the then Intermediate Appellate Court are hereby REVERSED and SET
ASIDE. The Court of Appeals is directed to conduct hearings on the application for judgment against
attachment bond filed by the petitioner and to reinstate the appeal. The temporary restraining order
dated July 17, 1985 is made PERMANENT.

SO ORDERED.

G.R. No. L-61464 May 28, 1988

BA FINANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, AUGUSTO YULO, LILY YULO (doing business
under the name and style of A & L INDUSTRIES), respondents.

GUTIERREZ, JR., J.:

This is a petition for review seeking to set aside the decision of the Court of Appeals which affirmed
the decision of the then Court of First Instance of Manila, dismissing the complaint instituted by the
petitioner and ordering it to pay damages on the basis of the private respondent's counterclaim.

On July 1, 1975, private respondent Augusto Yulo secured a loan from the petitioner in the amount
of P591,003.59 as evidenced by a promissory note he signed in his own behalf and as
representative of the A & L Industries. Respondent Yulo presented an alleged special power of
attorney executed by his wife, respondent Lily Yulo, who manages A & L Industries and under
whose name the said business is registered, purportedly authorizing Augusto Yulo to procure the
loan and sign the promissory note. About two months prior to the loan, however, Augusto Yulo had
already left Lily Yulo and their children and had abandoned their conjugal home. When the obligation
became due and demandable, Augusto Yulo failed to pay the same.

On October 7, 1975, the petitioner filed its amended complaint against the spouses Augusto and Lily
Yulo on the basis of the promissory note. It also prayed for the issuance of a writ of attatchment
alleging that the said spouses were guilty of fraud in contracting the debt upon which the action was
brought and that the fraud consisted of the spouses' inducing the petitioner to enter into a contract
with them by executing a Deed of Assignment in favor of the petitioner, assigning all their rights,
titles and interests over a construction contract executed by and between the spouses and A.
Soriano Corporation on June 19, 1974 for a consideration of P615,732.50 when, in truth, the
spouses did not have any intention of remitting the proceeds of the said construction contract to the
petitioner because despite the provisions in the Deed of Assignment that the spouses shall, without
compensation or costs, collect and receive in trust for the petitioner all payments made upon the
construction contract and shall remit to the petitioner all collections therefrom, the said spouses
failed and refuse to remit the collections and instead, misappropriated the proceeds for their own use
and benefit, without the knowledge or consent of the petitioner.

The trial court issued the writ of attachment prayed for thereby enabling the petitioner to attach the
properties of A & L Industries. Apparently not contented with the order, the petitioner filed another
motion for the examination of attachment debtor, alleging that the properties attached by the sheriff
were not sufficient to secure the satisfaction of any judgment that may be recovered by it in the case.
This was likewise granted by the court.

Private respondent Lily Yulo filed her answer with counterclaim, alleging that although Augusto Yulo
and she are husband and wife, the former had abandoned her and their children five (5) months
before the filing of the complaint; that they were already separated when the promissory note was
executed; that her signature in the special power of attorney was forged because she had never
authorized Augusto Yulo in any capacity to transact any business for and in behalf of A & L
Industries, which is owned by her as a single proprietor, that she never got a single centavo from the
proceeds of the loan mentioned in the promissory note; and that as a result of the illegal attachment
of her properties, which constituted the assets of the A & L Industries, the latter closed its business
and was taken over by the new owner.

After hearing, the trial court rendered judgment dismissing the petitioner's complaint against the
private respondent Lily Yulo and A & L Industries and ordering the petitioner to pay the respondent
Lily Yulo P660,000.00 as actual damages; P500,000.00 as unrealized profits; P300,000.00 as
exemplary damages; P30,000.00 as and for attorney's fees; and to pay the costs.

The petitioner appealed. The Court of Appeals affirmed the trial court's decision except for the
exemplary damages which it reduced from P300,000.00 to P150,000.00 and the attorney's fees
which were reduced from P30,000.00 to P20,000.00.

In resolving the question of whether or not the trial court erred in holding that the signature of
respondent Lily Yulo in the special power of attorney was forged, the Court of Appeals said:

The crucial issue to be determined is whether or not the signatures of the appellee
Lily Yulo in Exhibits B and B-1 are forged. Atty. Crispin Ordoa, the Notary Public,
admitted in open court that the parties in the subject documents did not sign their
signatures in his presence. The same were already signed by the supposed parties
and their supposed witnesses at the time they were brought to him for ratification.
We quote from the records the pertinent testimony of Atty. Ordoa, thus:
 Q. This document marked as Exhibit B-1, when this was presented to
you by that common friend, June Enriquez, it was already typewritten,
it was already accomplished, all typewritten.?

A. Yes, sir.

Q And the parties had already affixed their signatures in this

document?

A. Yes, sir.

Q. In this document marked as Exhibit B although it appears here that

this is an acknowledgment, you have not stated here that the
principal actually acknowledged this document to be her voluntary act
and deed?

A This in one of those things that escaped my attention. Actually I

have not gone over the second page. I believed it was in order I
signed it. (TSN pp. 13-14, Hearing of Nov. 26, 1976).

The glaring admission by the Notary Public that he failed to state in the
acknowledgment portion of Exhibit B-1 that the appellee Lily Yulo acknowledged the
said document to be her own voluntary act and deed, is a very strong and
commanding circumstance to show that she did not appear personally before the
said Notary Public and did not sign the document.

Additionally, the Notary Public admitted that, while June Enriquez is admittedly a
mutual friend of his and the defendant Augusta Yulo, and who is also an instrumental
witness in said Exhibit B-1., he could not recognize or tell which of the two signatures
appearing therein, was the signature of this June Enriquez.

Furthermore, as the issue is one of credibility of a witness, the findings and

conclusions of the trial court before whom said witness, Atty. Crispin Ordoa, the
Notary Public before whom the questioned document was supposedly ratified and
acknowledged, deserve great respect and are seldom disturbed on appeal by
appellate tribunals, since it is in the best and peculiar advantage of determining and
observing the conduct, demeanor and deportment of a particular witness while he is
testifying in court, an opportunity not enjoyed by the appellate courts who merely
have to rely on the recorded proceedings which transpired in the court below, and
the records are bare of any circumstance of weight, which the trial court had
overlooked and which if duly considered, may radically affect the outcome of the
case.

On the other hand, the appellee Lily Yulo, to back up her claim of forgery of her
signature in Exhibit B-1, presented in court a handwriting expert witness in the
person of Police Captain Yakal Giron of the Integrated National Police Training
Command, and who is also a Document Examiner of the same Command's Crime
Laboratory at Fort Bonifacio, Metro Manila. His experience as an examiner of
questioned and disputed documents, in our mind, is quite impressive. To qualify him
as a handwriting expert, he declared that he underwent extensive and actual studies
and examination of disputed or questioned document, both at the National Bureau of
Investigation Academy and National Bureau of Investigation Questioned Document
 Laboratory, respectively, from July 1964, up to his appointment as Document
Examiner in June, 1975, and, to further his experience along this line, he attended
the 297th Annual Conference of the American Society of Questioned Docurnent
Examiners held at Seattle, Washington, in August 1971, as a representative of the
Philippines, and likewise conducted an observation of the present and modern trends
of crime laboratories in the West Coast, U.S.A., in 1971; that he likewise had
conducted actual tests and examination of about 100,000 documents, as requested
by the different courts, administrative, and governmental agencies of the
Government, substantial portions of which relate to actual court cases.

In concluding that the signatures of the appellee Lily Yulo, in the disputed document
in question (Exh. B-1), were all forgeries, and not her genuine signature, the expert
witness categorically recited and specified in open court what he observed to be
about twelve (12) glaring and material significant differences, in his comparison of
the signatures appearing in the genuine specimen signatures of the said appellee
and with those appearing in the questioned document (Exhibit B-1). Indeed, we have
likewise seen the supposed notable differences, found in the standard or genuine
signatures of the appellee which were lifted and obtained in the official files of the
government, such as the Bureau of Internal Revenue on her income tax returns, as
compared to the pretended signature of the appellee appearing in Exhibits B, B-1. It
is also noteworthy to mention that the appellant did not even bother to conduct a
cross-examination of the handwriting expert witness, Capt. Giron, neither did the
appellant present another handwriting expert, at least to counter-act or balance the
appellee's handwriting expert.

Prescinding from the foregoing facts, we subscribe fully to the lower court's
observations that the signatures of the appellee Lily Yulo in the questioned document
(Exh. B-1) were forged. Hence, we find no factual basis to disagree. (pp. 28-30,
Rollo)

As to the petitioner's contention that even if the signature of Lily Yulo was forged or even if the
attached properties were her exclusive property, the same can be made answerable to the obligation
because the said properties form part of the conjugal partnership of the spouses Yulo, the appellate
court held that these contentions are without merit because there is strong preponderant evidence to
show that A & L Industries belongs exclusively to respondent Lily Yulo, namely: a) The Certificate of
Registration of A & L Industries, issued by the Bureau of Commerce, showing that said business is a
single proprietorship, and that the registered owner thereof is only Lily Yulo; b) The Mayor's Permit
issued in favor of A & L Industries, by the Caloocan City Mayor's Office showing compliance by said
single proprietorship company with the City Ordinance governing business establishments; and c)
The Special Power of Attorney itself, assuming but without admitting its due execution, is tangible
proof that Augusto Yulo has no interest whatsoever in the A & L Industries, otherwise, there would
have been no necessity for the Special Power of Attorney if he is a part owner of said single
proprietorship.

With regard to the award of damages, the Court of Appeals affirmed the findings of the trial court that
there was bad faith on the part of the petitioner as to entitle the private respondent to damages as
shown not only by the fact that the petitioner did not present the Deed of Assignment or the
construction agreement or any evidence whatsoever to support its claim of fraud on the part of the
private respondent and to justify the issuance of a preliminary attachment, but also by the following
findings:
 Continuing and elaborating further on the appellant's mala fide actuations in securing
the writ of attachment, the lower court stated as follows:

Plaintiff not satisfied with the instant case where an order for
attachment has already been issued and enforced, on the strength of
the same Promissory Note (Exhibit"A"), utilizing the Deed of Chattel
Mortgage (Exhibit "4"), filed a foreclosure proceedings before the
Office of the Sheriff of Caloocan (Exhibit"6") foreclosing the remaining
properties found inside the premises formerly occupied by the A & L
Industries. A minute examination of Exhibit "4" will show that the
contracting parties thereto, as appearing in par. 1 thereof, are
Augusto Yulo, doing business under the style of A & L Industries
(should be A & L Glass Industries Corporation), as mortgagor and BA
Finance Corporation as mortgagee, thus the enforcement of the
Chattel Mortgage against the property of A & L Industries exclusively
owned by Lily T. Yulo appears to be without any factual or legal basis
whatsoever. The chattel mortgage, Exhibit "4" and the Promissory
Note, Exhibit A, are based on one and the same obligation. Plaintiff
tried to enforce as it did enforce its claim into two different modes a
single obligation.

Aware that defendant Lily Yulo, filed a Motion to Suspend

Proceedings by virtue of a complaint she filed with the Court of First
Instance of Caloocan, seeking annulment of the Promissory Note, the
very basis of the plaintiff in filing this complaint, immediately after the
day it filed a Motion for the Issuance of an Alias Writ of Preliminary
Attachment . . .Yet, inspite of the knowledge and the filing of this
Motion to Suspend Proceedings, the Plaintiff still filed a Motion for the
Issuance of a Writ of Attachment dated February 6, 1976 before this
court. To add insult to injury, plaintiff even filed a Motion for
Examination of the Attachment Debtor, although aware that Lily Yulo
had already denied participation in the execution of Exhibits "A" and
"B". These incidents and actions taken by plaintiff, to the thinking of
the court, are sufficient to prove and establish the element of bad
faith and malice on the part of plaintiff which may warrant the award
of damages in favor of defendant Lily Yulo. (Ibid., pp. 102-103). <re||an1w>

Indeed, the existence of evident bad faith on the appellant's part in

proceeding against the appellee Lily Yulo in the present case, may
likewise be distressed on the fact that its officer Mr. Abraham Co, did
not even bother to demand the production of at least the duplicate
original of the Special Power of Attorney (Exhibit B) and merely
contended himself with a mere xerox copy thereof, neither did he
require a more specific authority from the A & L Industries to contract
the loan in question, since from the very content and recitals of the
disputed document, no authority, express or implied, has been
delegated or granted to August Yulo to contract a loan, especially
with the appellant. (pp. 33-34, Rollo)

Concerning the actual damages, the appellate court ruled that the petitioner should have presented
evidence to disprove or rebut the private respondent's claim but it remained quiet and chose not to
disturb the testimony and the evidence presented by the private respondent to prove her claim.
In this petition for certiorari, the petitioner raises three issues. The first issue deals with the appellate
court's affirmance of the trial court's findings that the signature of the private respondent on the
Special Power of Attorney was forged. According to the petitioner, the Court of Appeals disregarded
the direct mandate of Section 23, Rule 132 of the Rules of Court which states in part that evidence
of handwriting by comparison may be made "with writings admitted or treated as genuine by the
party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge,"
and that there is no evidence on record which proves or tends to prove the genuineness of the
standards used.

There is no merit in this contention.

The records show that the signatures which were used as "standards" for comparison with the
alleged signature of the private respondent in the Special Power of Attorney were those from the
latter's residence certificates in the years 1973, 1974 and 1975, her income tax returns for the years
1973 and 1975 and from a document on long bond paper dated May 18, 1977. Not only were the
signatures in the foregoing documents admitted by the private respondent as hers but most of the
said documents were used by the private respondent in her transactions with the government. As
was held in the case of Plymouth Saving & Loan Assn. No. 2 v. Kassing (125 NE 488, 494):

We believe the true rule deduced from the authorities to be that the genuineness of a
"standard" writing may be established (1) by the admission of the person sought to
be charged with the disputed writing made at or for the purposes of the trial or by his
testimony; (2) by witnesses who saw the standards written or to whom or in whose
hearing the person sought to be charged acknowledged the writing thereof; (3) by
evidence showing that the reputed writer of the standard has acquiesced in or
recognized the same, or that it has been adopted and acted upon by him his
business transactions or other concerns....

Furthermore, the judge found such signatures to be sufficient as standards. In the case of Taylor-
Wharton Iron & Steel Co. v. Earnshaw (156 N.E. 855, 856), it was held:

When a writing is offered as a standard of comparison it is for the presiding judge to

decide whether it is the handwriting of the party to be charged. Unless his finding is
founded upon error of law, or upon evidence which is, as matter of law, insufficient to
justify the finding, this court will not revise it upon exceptions." (Costelo v. Crowell,
139 Mass. 588, 590, 2 N.E. 648; Nuez v. Perry, 113 Mass, 274, 276.)

We cannot find any error on the part of the trial judge in using the above documents as standards
and also in giving credence to the expert witness presented by the private respondent whose
testimony the petitioner failed to rebut and whose credibility it likewise failed to impeach. But more
important is the fact that the unrebutted handwriting expert's testimony noted twelve (12) glaring and
material differences in the alleged signature of the private respondent in the Special Power of
Attorney as compared with the specimen signatures, something which the appellate court also took
into account. In Cesar v. Sandiganbayan (134 SCRA 105, 132), we ruled:

Mr. Maniwang pointed to other significant divergences and distinctive characteristics

between the sample signatures and the signatures on the questioned checks in his
report which the court's Presiding Justice kept mentioning during Maniwang's
testimony.

In the course of his cross-examination, NBI expert Tabayoyong admitted that he saw
the differences between the exemplars used and the questioned signatures but he
 dismissed the differences because he did not consider them fundamental. We rule
that significant differences are more fundamental than a few similarities. A forger
always strives to master some similarities.

The second issue raised by the petitioner is that while it is true that A & L Industries is a single
proprietorship and the registered owner thereof is private respondent Lily Yulo, the said
proprietorship was established during the marriage and its assets were also acquired during the
same. Therefore, it is presumed that this property forms part of the conjugal partnership of the
spouses Augusto and Lily Yulo and thus, could be held liable for the obligations contracted by
Augusto Yulo, as administrator of the partnership.

There is no dispute that A & L Industries was established during the marriage of Augusta and Lily
Yulo and therefore the same is presumed conjugal and the fact that it was registered in the name of
only one of the spouses does not destroy its conjugal nature (See Mendoza v. Reyes, 124 SCRA
161, 165). However, for the said property to be held liable, the obligation contracted by the husband
must have redounded to the benefit of the conjugal partnership under Article 161 of the Civil Code.
In the present case, the obligation which the petitioner is seeking to enforce against the conjugal
property managed by the private respondent Lily Yulo was undoubtedly contracted by Augusto Yulo
for his own benefit because at the time he incurred the obligation he had already abandoned his
family and had left their conjugal home. Worse, he made it appear that he was duly authorized by his
wife in behalf of A & L Industries, to procure such loan from the petitioner. Clearly, to make A & L
Industries liable now for the said loan would be unjust and contrary to the express provision of the
Civil Code. As we have ruled in Luzon Surety Co., Inc. v. De Gracia (30 SCRA 111, 115-117):

As explained in the decision now under review: "It is true that the husband is the
administrator of the conjugal property pursuant to the provisions of Art. 163 of the
new Civil Code. However, as such administrator the only obligations incurred by the
husband that are chargeable against the conjugal property are those incurred in the
legitimate pursuit of his career, profession or business with the honest belief that he
is doing right for the benefit of the family. This is not true in the case at bar for we
believe that the husband in acting as guarantor or surety for another in an indemnity
agreement as that involved in this case did not act for the benefit of the conjugal
partnership. Such inference is more emphatic in this case, when no proof is
presented that Vicente Garcia in acting as surety or guarantor received consideration
therefore, which may redound to the benefit of the conjugal partnership.(Ibid, pp. 46-
47).

xxx xxx xxx

xxx xxx xxx

In the most categorical language, a conjugal partnership under that provision is liable
only for such "debts and obligations contracted by the husband for the benefit of the
conjugal partnership." There must be the requisite showing then of some advantage
which clearly accrued to the welfare of the spouses. There is none in this case.

xxx xxx xxx

Moreover, it would negate the plain object of the additional requirement in the
present Civil Code that a debt contracted by the husband to bind a conjugal
partnership must redound to its benefit. That is still another provision indicative of the
 solicitude and tender regard that the law manifests for the family as a unit. Its interest
is paramount; its welfare uppermost in the minds of the codifiers and legislators.

We, therefore, rule that the petitioner cannot enforce the obligation contracted by Augusto Yulo
against his conjugal properties with respondent Lily Yulo. Thus, it follows that the writ of attachment
cannot issue against the said properties.

Finally, the third issue assails the award of actual damages according to the petitioner, both the
lower court and the appellate court overlooked the fact that the properties referred to are still subject
to a levy on attachment. They are, therefore, still under custodia legis and thus, the assailed decision
should have included a declaration as to who is entitled to the attached properties and that assuming
arguendo that the attachment was erroneous, the lower court should have ordered the sheriff to
return to the private respondent the attached properties instead of condemning the petitioner to pay
the value thereof by way of actual damages.

In the case of Lazatin v. Twao (2 SCRA 842, 847), we ruled:

xxx xxx xxx

... It should be observed that Sec. 4 of Rule 59, does not prescribed the remedies
available to the attachment defendant in case of a wrongful attachment, but merely
provides an action for recovery upon the bond, based on the undertaking therein
made and not upon the liability arising from a tortuous act, like the malicious suing
out of an attachment. Under the first, where malice is not essential, the attachment
defendant, is entitled to recover only the actual damages sustained by him by reason
of the attachment. Under the second, where the attachment is maliciously sued out,
the damages recoverable may include a compensation for every injury to his credit,
business or feed (Tyler v. Mahoney, 168 NC 237, 84 SE 362; Pittsburg etc. 5
Wakefield, etc., 135 NC 73, 47 SE 234). ...

The question before us, therefore, is whether the attachment of the properties of A & L Industries
was wrongful so as to entitle the petitioner to actual damages only or whether the said attachment
was made in bad faith and with malice to warrant the award of other kinds of damages. Moreover, if
the private respondent is entitled only to actual damages, was the court justified in ordering the
petitioner to pay for the value of the attached properties instead of ordering the return of the said
properties to the private respondent Yulo ?

Both the trial and appellate courts found that there was bad faith on the part of the petitioner in
securing the writ of attachment. We do not think so. "An attachment may be said to be wrongful
when, for instance, the plaintiff has no cause of action, or that there is no true ground therefore, or
that the plaintiff has a sufficient security other than the property attached, which is tantamout to
saying that the plaintiff is not entitled to attachment because the requirements of entitling him to the
writ are wanting. (7 C.J.S., 664)" (p. 48, Section 4, Rule 57, Francisco, Revised Rules of Court).

Although the petitioner failed to prove the ground relied upon for the issuance of the writ of
attachment, this failure cannot be equated with bad faith or malicious intent. The steps which were
taken by the petitioner to ensure the security of its claim were premised, on the firm belief that the
properties involved could be made answerable for the unpaid obligation due it. There is no question
that a loan in the amount of P591,003.59 was borrowed from the bank.

We, thus, find that the petitioner is liable only for actual damages and not for exemplary damages
and attorney's fees. Respondent Lily Yulo has manifested before this Court that she no longer
desires the return of the attached properties since the said attachment caused her to close down the
business. From that time she has become a mere employee of the new owner of the premises. She
has grave doubts as to the running condition of the attached machineries and equipments
considering that the attachment was effected way back in 1975. She states as a matter of fact that
the petitioner has already caused the sale of the machineries for fear that they might be destroyed
due to prolonged litigation. We, therefore, deem it just and equitable to allow private respondent Lily
Yulo to recover actual damages based on the value of the attached properties as proven in the trial
court, in the amount of P660,000.00. In turn, if there are any remaining attached properties, they
should be permanently released to herein petitioner.

We cannot, however, sustain the award of P500,000.00 representing unrealized profits because this
amount was not proved or justified before the trial court. The basis of the alleged unearned profits is
too speculative and conjectural to show actual damages for a future period. The private respondent
failed to present reports on the average actual profits earned by her business and other evidence of
profitability which are necessary to prove her claim for the said amount (See G. A. Machineries, Inc.
v. Yaptinchay, 126 SCRA 78, 88).

The judgment is therefore set aside insofar as it holds the petitioner liable for P500,000.00 actual
damages representing unrealized profits, P150,000.00 for exemplary damages and P20,000.00 for
attorney's fees. As stated earlier, the attached properties, should be released in favor of the
petitioner.

WHEREFORE, the decision of the Court of Appeals is hereby SET ASIDE and the petitioner is
ordered to pay the private respondent Lily Yulo the amount of SIX HUNDRED SIXTY THOUSAND
PESOS (P660,000.00) as actual damages. The remaining properties subject of the attachment are
ordered released in favor of the petitioner.

SO ORDERED.

G.R. No. L-48820 May 25, 1979

MALAYAN INSURANCE CO., INC., petitioner,

vs.
HON. EMILIO V. SALAS, as Presiding Judge, Court of First Instance of Rizal, Branch I, Pasig,
Metro Manila, ROSENDO FERNANDO and JOHN DOE, respondents.

AQUINO, J.:

This case is about the surety company's liability on its replevin bond which was not included in the
final judgment against the principal in the bond. It is undisputed that in 1970 Makati Motor Sales,
Inc., as vendor mortgagee, sued Rosendo Fernando for the recovery of four diesel trucks and the
connection of the balance of his obligation plus damages (Civil Case No. 13874, Court of First
Instance of Rizal, Pasig Branch 1).

To obtain immediate possession of the trucks pending trial, Makati Motors Sales, Inc. posted a
replevin bond executed by the Malayan Insurance Co., Inc. In that bond the surety bound itself to
pay P362,775.92 "for the return of the property to the defendant, if the return thereof be adjudged,
and for the payment of such sum as may in the cause be recovered against the plaintiff ". Pursuant
to the order of the court, the sheriff seized the four trucks. Later, two of the trucks were returned to
Fernando.
After trial, or on March 2, 1973, the lower court rendered judgment ordering Makati Motor Sales, Inc.
to return to Fernando the other two trucks and to pay him for the seizure of each of them, damages
in the sum of three hundred pesos daily from September 25 and 26, 1970 (or six hundred pesos for
the two trucks from the latter date) until their return to Fernando plus P26,000 as actual and moral
damages.

In turn, Fernando was ordered to pay Makati Motor Sales, Inc. the sum of P66,998.34, as the
balance of the price of the two trucks, with twelve percent interest from February 28, 1969 until fully
paid and the further sum of P15,730.20 as the cost of the repair with six percent interest from
September 11, 1970 until fully paid.

Makati Motor Sales, Inc. appealed to the Court of Appeals. It affirmed the lower court's judgment in
its decision of March 1, 1977 in CA-G. R. No. 54196-R.

Meanwhile, on May 11, 1973, or before the elevation of the record to the Court of Appeals, Fernando
filed in the trial court an application for damages against the replevin bond. It was opposed by the
surety on the ground that the trial court had lost jurisdiction over the case because of the perfection
of the appeal. The trial court denied the application on June 28, 1973.

On May 27, 1974 Fernando filed in the Court of Appeals his claim for damages against the replevin
bond. He prayed that the same be included in the judgment. The surety, which was furnished with a
copy of the claim, filed an opposition to it.

The Court of Appeals did not act immediately on that claim but in its 1977 decision it observed that
Fernando's motion or claim "was correct" and it ordered that his claim against Malayan Insurance
Co., Inc. "be heard before the trial court". That decision affirming the lower court's judgment became
final and executory on March 18, 1977.

On April 6, 1977, or after the remand of the record to the trial court, Fernando filed a motion to set
for hearing his application for damages against the surety on its replevin bond. The application was
heard with notice to Makati Motor Sales, Inc. and Malayan Insurance Co., Inc. Fernando submitted
documentary evidence. On December 15, 1977 Malayan Insurance Co., Inc. moved to quash the
proceeding regarding the claim for damages. It contended that the trial court has no jurisdiction to
alter or modify the final judgment of the Court of Appeals.

The trial court in its order of July 14, 1978 denied the motion to quash. It directed Malayan Insurance
Co., Inc. to pay Fernando the damages which it had adjudged against Makati Motor Sales, Inc. The
surety company appealed from that order to this Court pursuant to Republic Act No. 5440.

Section 10, Rule 60 of the Rules of Court provides that in replevin cases, as in receivership and
injunction cases, the damages "to be awarded to either party upon any bond filed by the other" "shall
be claimed, ascertained, and granted" in accordance with section 20 of Rule 57 which reads:

SEC. 20. Claim for damages on account of illegal attachment. If the judgment on
the action be in favor of the party against whom attachment was issued, he may
recover, upon the bond given or deposit made by the attaching creditor, any
damages resulting from the attachment. Such damages may be awarded only upon
application and after proper hearing, and shall be included in the final judgment. The
application must be filed before the trial or before appeal is perfected or before the
judgment becomes executory, with due notice to the attaching creditor and his surety
or sureties, setting forth the facts showing his right to damages and the amount
thereof.
 If the judgment of the appellate court be favorable to the party against whom the
attachment was issued, he must claim damages sustained during the pendency of
the appeal by filing an application with notice to the party in whose favor the
attachment was issued or his surety or sureties, before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard
and decided by the trial court.

Under section 20, in order to recover damages on a replevin bond (or on a bond for preliminary
attachment, injunction or receivership) it is necessary (1) that the defendant-claimant has secured a
favorable judgment in the main action, meaning that the plaintiff has no cause of action and was not,
therefore, entitled to the provisional remedy of replevin; (2) that the application for damages,
showing claimant's right thereto and the amount thereof, be filed in the same action before trial or
before appeal is perfected or before the judgment becomes executory; (3) that due notice be given
to the other party and his surety or sureties, notice to the principal not being sufficient and (4) that
there should be a proper hearing and the award for damages should be included in the final
judgment (Luneta Motor Co. vs. Menendez 117 Phil. 970, 974; 3 Moran's Comments on the Rules of
Court, 1970 Ed., pp. 54-56. See Cruz vs. Manila Surety & Fidelity Co., Inc., 92 Phil. 699).

In this appeal, Malayan Insurance Co., Inc. contends that the trial court's judgment against it is not
warranted under section 20 of Rule 57. It assails the trial court's competence to render judgment
against the surety after the decision of the Court of Appeals against the surety's principal had
become final and executory.

We hold that the trial court has jurisdiction to pass upon Fernando's application for the recovery of
damages on the surety's replevin bond. The reason is that Fernando seasonably filed his application
for damages in the Court of Appeals. It was not his fault that the damages claimed by him against
the surety were not included in the judgment of the Court of Appeals affirming the trial court's award
of damages to Fernando payable by the principal in the replevin bond. The peculiar factual situation
of this case makes it an exception to the settled rule that the surety's liability for damages should be
included in the final judgment to prevent duplicity of suits or proceedings.

As may be gathered from section 20 of Rule 57, the application for damages against the surety must
be filed (with notice to the surety) in the Court of First Instance before the trial or before appeal is
perfected or before the judgment becomes executory.

If an appeal is taken, the application must be filed in the appellate court but always before the
judgment of that court becomes executory so that the award may be included in its judgment (Luneta
Motor Co. vs. Menendez 117 Phil. 970, 976).

But it is not always mandatory that the appellate court should include in its judgment the award of
damages against the surety. Thus, it was held that where the application for damages against the
surety is seasonably made in the appellate court, "the latter must either proceed to hear and decide
the application or refer "it" to the trial court and allow it to hear and decide the same"(Rivera vs.
Talavera, 112 Phil. 209, 219).

We have stated earlier that in the instant case Fernando in 1974 made a timely claim in the Court of
Appeals for an award of damages against Malayan Insurance Co., Inc. enforceable against its
replevin bond. The surety was notified of that application. It registered an opposition to the claim.
The Court of Appeals did not resolve the claim immediately but in its 1977 decision it directed the
trial court to hear that claim.
Obviously, the lower court has no choice but to implement that directive which is the law of the case
(See Compagnie Franco Indochinoise vs. Deutsch, etc., 39 Phil. 474, 476).

However, the trial court's implementation of that directive was incorrect. It set the claim for hearing
but the surety assailed its jurisdiction and did not consider itself bound by the mandate of the
appellate court. The merits of the claim for damages were not threshed out at the hearing because
the surety stood pat on its contention that the trial court has no jurisdiction to allow the claim in view
of the finality of the decision of the Court of Appeals.

This Court has held that, if the surety was not given notice when the claim for damages against
the principal in the replevin bond was heard, then as a matter of procedural due process the surety
is entitled to be heard when the judgment for damages against the principal is sought to be enforced
against the surety's replevin bond.

The hearing win be summary and win be limited to such new defense, not previously set up by the
principal, as the surety may allege and offer to prove. The oral proof of damages already adduced by
the claimant may be reproduced without the necessity of retaking the testimony, but the surety
should be given an opportunity to cross-examine the witness or witnesses if it so desires." That
procedure would forestall the perpetration of fraud or collusion against the surety (Visayan Surety
and Insurance Corporation vs. Pascual, 85 Phil. 779, 785-786).

Inasmuch as in this case appellant Malayan Insurance Co., Inc. was not given the summary hearing
during which it could contest the reality or reasonableness of Fernando's claim for damages, we
have to set aside the trial court's order awarding damages against it and, in the interest of justice,
give it another opportunity to be heard on the merits of Fernando's claim for damages.

Before closing, it may be useful to make a review and synthesis of the copious jurisprudence on the
surety's liability in attachment, injunction, replevin and receivership bonds. It was observed in one
case that once upon a time the rulings on that point were in a muddled state.

Section 20 of Rule 57 is a revised version of section 20, Rule 59 of the 1940 Rules of Court which
earlier section 20 is a restatement of this Court's rulings under sections 170, 177, 223, 272 and 439
of the Code of Civil Procedure regarding the damages recoverable in case of the wrongful issuance
of the writs of preliminary injunction, attachment, mandamus and replevin and the appointment of a
receiver.

Section 170 contains the provision that the damages suffered in connection with the issuance of a
preliminary injunction shall be ascertained by the court trying the action (meaning the court where
the action is pending) and shall be included in the final judgment "against the plaintiff and against the
sureties". As to damages in case of wrongful attachment, see section 439 of the Code of Civil
Procedure and Belzunce vs. Fernandez, 10 Phil. 452.

So, as held under the Code of Civil Procedure, if the preliminary injunction was issued by this Court,
the specification of damages should be filed in this Court. The petitioner and his bondsmen should
be served with copies of the specification (Somes vs. Crossfield, 9 Phil. 13 and Macatangay vs.
Municipality of San Juan de Bocboc, 9 Phil. 19).

On the other hand, under section 439 of the Code of Civil Procedure, the damages caused by a
wrongful attachment may be adjudicated in a summary hearing but the better practice would be to
claim the damages in the answer and to offer evidence in support thereof during the trial (Gasataya
vs. Fallon 32 Phil. 245 and Raymundo vs. Carpio, 33 Phil. 395).
Note that under the second paragraph of section 20, Rule 57 of the present Rules of Court, the
damages suffered during the pendency of an appeal in a case where the writs of attachment,
injunction and replevin or an order of receivership were issued should be claimed in the appellate
court.

There is an old ruling that the sureties in an injunction bond are bound by a judgment for damages
against their principal even if the sureties were not heard at the time the claim for damages was
tried. The reason for that ruling is that the sureties in an injunction bond "assume such a connection
with the suit that they are included by a judgment in it in a suit at law upon the bond, so far as the
same issues are involved; and that, upon the entry of a judgment against the principal, their liability
is absolute" (Florentino vs. Domadag, 45 O.G. 4937, 81 Phil. 882).

Also, it was held that if damages were awarded against the principal in a replevin bond without
notice to the surety, that final judgment may be enforced against the surety after it has been given
an opportunity to be heard as to the reality or reasonableness of the alleged damages. In such a
case, the trial court must order the surety to show cause why the bond should not answer for the
judgment for damages. The hearing is summary and the surety may cross-examine the witnesses
presented by the defendant (Visayan Surety & Insurance Corporation vs. Pascual, 85 Phil 779).

Insofar as those rulings in the Florentino and Visayan Surety cases allowed a claim for damages
against the surety to be ventilated in a separate proceeding or after the finality of the judgment for
damages against the principal in the bond, those rulings were jettisoned and abandoned in several
subsequent cases because they are contrary to the explicit provision of section 20 of Rule 59, now
Rule 57, that the judgment for damages against the surety should be included in the final judgment
to avoid additional proceedings (Cruz vs. Manila Surety & Fidelity Co., Inc., 92 Phil. 699; Japco vs.
City of Manila, 48 Phil. 851, 855).

The damages are recoverable on the theory that an actionable wrong was committed by the losing
party. The recovery is limited to the amount of the bond (Pacis vs. Commission on Elections, L-
29026, August 22, 1969, 29 SCRA 24, 29).

The usual procedure is to file an application for damages with due notice to the other party and his
sureties. The other part may answer the application. Upon the issues thus being Joined, the matter
will be tried and determined. A court order declaring the bond confiscated without adhering to that
procedure is void ( Fabella vs. Tancinco 86 Phil. 543; Luzon Sureo Inc. Guerrero, L-20705, June 20,
1966. 17 SCRA 100).

The claim for damages against the surety should be made it notice to the surety and before the
judgment against the principal becomes executory. The liability of the surety should be included in
the final judgment. That remedy is exclusive. If riot assailed of, the surety is released (Curilan vs.
Court of Appeals, 105 Phil. 1160 and De la Rama vs. Villarosa, 118 Phil. 42-1. 430: Jesswani vs.
Dialdas 91 Phil. 915: Estioco vs. Hamada, 103 Phil. 1145).

Therefore, the prevailing settled rule is that a court has no jurisdiction to entertain any proceeding
seeking to hold a surety upon its bond if such surety has not been given notice the claim for
damages against the principal and the judgment holding the latter liable has already become
executor (People's Surety & Insurance Co., Inc. vs. Court of Appeals, L-21627. June 29, 1961, 20
SCRA 481).

If the judgment awarding damages against the principal in a bond for the lifting of a preliminary
injunction had already become executory, that claim cannot be pressed against the surety by setting
it for hearing with notice to the surety. The failure to notify the surety of the claim for damages
against the principal relieves the surety from any liability on his bond (Sy vs. Ceniza, 115 Phil. 396;
Pacis vs. Commission on Elections, L-29026, August 22, 1969, 29 SCRA 24; Dee vs. Masloff, 116
Phil. 412).

To entertain the belated claim against the surety after the judgment for damages against the
principal has become executory would result in the alteration of that judgment. That should not be
done (De Guia vs. Alto Surety & Insurance Co., Inc., 117 Phil. 434; Visayan Surety & Insurance Co.,
Inc. vs. De Aquino, 96 P1. 900; Port Motors, Inc. vs. Raposas and Alto Surety & Insurance Co., Inc.,
100 Phil. 732; Gerardo vs. Plaridel Surety & Insurance Co., Inc., 100 Phil. 178; Luneta Motor Co. vs.
Lopez, 105 Phil. 327; Curilan vs. Court of Appeals, 105 Phil. 1160; Riel vs. Lacson, 104 Phil. 1055).

Moreover, the damages claimed by the defendant should be pleaded as a compulsory counterclaim
in his answer. Hence, a separate action to claim those damages is unwarranted (Ty Tion and Yu vs.
Marsman & Co. and Alpha Insurance & Surety Co., Inc., 115 Phil. 746, 749; Medina vs. Maderera
del Norte de Catanduanes, Inc., 51 Phil. 240; Nueva-Espaa vs. Montelibano, 58 Phil. 807; Tan
Suyco vs. Javier, 21 Phil. 82).

It may be noted that in the Visayan Surety case, 85 Phil 779, Visayan Surety & Insurance
Corporation filed a replevin bond for one Yu Sip who sued Victoria Pascual for the recovery of a
truck. The trial court found that the writ of replevin was wrongfully procured, that Victoria Pascual
was the lawful owner of the truck and that she suffered damages on account of its wrongful seizure
by the sheriff at the instance of plaintiff Yu Sip.

The trial court ordered Yu Sip to return the truck to Victoria Pascual or to pay its value of P2,300 in
case of his inability to return it and, in either case, to pay thirty pesos daily from January 6, 1947 up
to the date of the return of the truck or until its value was fully paid. The Court of Appeals affirmed
that judgment.

After the return of the record to the trial court, Victoria Pascual filed a "petition for execution of the
surety bond" wherein she prayed for a writ of execution against the surety to satisfy the judgment out
of its replevin bond. The surety opposed that petition. It contended that it was never notified by
Victoria Pascual regarding her presentation of evidence covering the damages which she had
suffered. The trial court granted the petition and ordered the issuance of a writ of execution against
the surety. That order was assailed in a certiorari in this Court.

It was held that the writ of execution should be set aside and that the surety should be given a
chance to be heard in a summary proceeding. That proceeding was conducted after the judgment
against Yu Sip, the principal in the replevin bond, had become final and executory.

What was done in the Visayan Surety case, as recounted above, was not allowed in subsequent
cases. Thus, inManila Underwriters Insurance Co., Inc. vs. Tan, 107 Phil. 911, the trial court
rendered in 1954 a judgment dissolving the preliminary attachment and ordering the plaintiff to pay
the defendant the damages which the latter suffered by reason of the wrongful attachment. The
surety in the attachment bond was not notified of the hearing but it was furnished with a copy of the
decision.

In 1957 the Court of Appeals affirmed that judgment. After it became final, the defendant filed in the
trial court against the surety a motion for execution winch the latter opposed. At the hearing of the
motion, the defendant offered to reproduce the evidence which he had presented at the trial. The
offer was accepted by the trial court. It issued the writ of execution against the surety.
It was held that, because the surety was not notified of the hearing on the damages suffered by the
defendant in the manner prescribed in section 20 of Rule 59, now Rule 57, it was not liable for
damages under its attachment bond.

The surety is notified so that he may cross-examine the witnesses testifying as to the damages and
question the evidence presented by the claimant and interpose any appropriate defense (Riel vs.
Lacson, 104 Phil. 1055; Liberty Construction Supply Co. vs. Pecson, 89 Phil. 50).

So, if plaintiff's claim for damages resulting from the wrongful lifting of the writ of preliminary
injunction was awarded in the main decision without notice to the surety and the decision had
become executory, the failure to notify the surety on time relieves him from liability under the bond
(Alliance Insurance & Surety Co., Inc. vs. Piccio, 105 Phil. 1192).

The surety may be held liable only if before the judgment for damages against the principal becomes
executory, an order is entered against him after a hearing with notice to him. After the judgment
becomes executory, it is too late to file such claim for damages with notice to the surety (Abelow vs.
Riva 105 Phil. 159; Visayan Surety & Insurance Corp. vs. Lacson, 96 Phil. 878).

Where the Court of Appeals dismissed a mandamus action originally filed in that court and dissolved
the preliminary injunction which it had issued and after entry of judgment was made the record was
remanded to the trial court, it was error for the Court of Appeals to allow the respondent in that case
to file a claim for damages against the principal and surety in the injunction bond. The claim should
have been filed before the judgment of dismissal became final (Luzon Surety Co. Inc. vs. Court of
Appeals, 108 Phil. 157).

Section 20 of Rule 57 contemplates one judgment for damages against the principal and the surety
in the injunction, replevin, attachment and receivership bonds. Since the judicial bondsman has no
right to demand the exhaustion of the property of the principal debtor, there is no justification for
entering separate judgments against them. The claim for damages against the surety should be
made before entry of judgment (Del Rosario vs. Nava, 95 Phil. 637).

In the Del Rosario case a judgment for damages was rendered against the principal in an
attachment bond but there was no notice to the surety of the claim for damages. That judgment
became final. After the execution against the principal was returned unsatisfied, the claimant filed a
motion praying that the surety company be required to show cause why it should not answer for the
judgment against the principal.

It was held that, while the prevailing party may apply for an award of damages against the surety
even after the award has already been obtained against the principal, nevertheless, in order that all
awards for damages may be included in the final judgment, the application and notice to the surety
must be made before the judgment against the principal becomes final and executory.

In another case, it was held that as the winning party sought to hold the surety liable on its replevin
bond almost a year after the judgment of the Court of Appeals became final, the trial court erred in
enforcing its judgment against the surety. "The surety may only be held liable if, before judgment
becomes final, an order against the surety is entered after a hearing with notice to the surety". The
claim against the surety should be included in the final judgment. It is not sufficient that the surety be
afforded an opportunity to oppose the writ of execution. (Plaridel Surety & Insurance Company vs.
De los Angeles, L-25550, July 31, 1968, 24 SCRA 487).
After this Court's judgment dissolving a preliminary injunction had become final and executory, it
would be too late to entertain in the trial court the defendant's application for damages allegedly
caused by the injunction (Santos vs. Moir 36 Phil. 350).

The defendant in a replevin case cannot file a separate action for damages due to the wrongful
issuance of the writ. He should have claimed the damages as a counterclaim in the original replevin
suit (Pascua vs. Sideco 24 Phil. 26, Ty Tion and Yu vs. Marsman & Co. and Alpha Ins. & Surety Co.
Inc., 115 Phil. 746).

A final judgment for damages against the principal in a replevin bond cannot be enforced against the
surety company which was not notified of the claim for damages and was not afforded a chance to
be heard (People's Surety and Ins. Co., Inc. vs. Aragon, 117 Phil, 257).

Where an injunction was dissolved and only attorney's fees and costs were adjudged against the
principal, and the procedure for claiming damages against the surety was not followed, no recourse
could be had against the injunction bond in case the writ of execution against the principal was not
satisfied. Moreover, the attorney's fees and costs could be recovered from the principal even without
the filing of the bond (People's Surety & Insurance Co., Inc. vs. Bayona, 103 Phil. 1109).

Where after the dismissal of a petition for relief from the judgment of a municipal court, the Court of
First Instance ordered ex parte the issuance of a writ of execution against the petitioner's injunction
bond, that order is void because there was no formal claim for damages and there was no hearing
with notice to the petitioner and his surety. The court should hold a hearing. (Luzon Surety Co., Inc.
vs. Guerrero, L-20705, June 20, 1966, 17 SCRA 400).

Where on June 11, 1959 an action to stop the foreclosure of a chattel mortgage was dismissed,
without prejudice, for failure to prosecute and, before that dismissal became final, the defendant did
not prove any damages resulting from the issuance of the preliminary injunction, defendant's motion
of September 7, 1959 praying that judgment be rendered against the surety's bond could no longer
be entertained. The claim for damages should have been made before entry of final judgment. It
must be duly substantiated at the proper hearing with notice to the surety (Jao and Sia vs. Royal
Financing Corporation, 114 Phil. 1152; Visayan Surety & Insurance Corp. vs. Lacson, 96 Phil. 878).

If the case wherein the injunction was issued was dismissed for failure to prosecute and no damages
were awarded to the defendant by reason of the issuance of the injunction, it was error for the trial
court to issue a writ of execution against the surety since there was no claim nor evidence of
damages suffered the defendant. The order of dismissal did not include in final of damages. (Vet
Bros. and Co., Inc. vs. Movido 11 4 Phil, 211).

The case of Vadil vs. De Venecia, 118 Phil. 1217, involves a queer situation. Plaintiff corporation in
that case filed an action to recover a sum of money. It asked for a writ of attachment. Before any
attachment could be issued, the defendant filed a counterbond. But this bond provided that
the defendant and his sureties would pay "all damages that the defendant (sic) may suffer by reason
of" the attachment. In other words, the defendant executed a bond in favor of himself.

Judgment was rendered for the plaintiff. As the execution was returned unsatisfied, the trial court on
plaintiff's motion ordered execution against defendant's bond. It was held that the execution was
wrongfully issued.

However, where an injunction was issued in a forcible entry case but on certiorari to the Court of
First Instance, the justice of the peace court was held to be without jurisdiction to entertain the
ejectment case, that ejectment suit is not considered dismissed and it may still be regarded as
pending in the justice of the peace court for the purpose of allowing the defendant's claim for
damages on the injunction bond (Cruz vs. Manila Surety & Fidelity Co., 92 Phil. 699).

Section 10 of Rule 60 makes section 20 of Rule 57 applicable not only to the replevin bond but also
to the redelivery bond posted by the defendant for the lifting of the order of seizure. The requisites
for holding the surety liable on thereplevin bond are also the requisites for holding the surety hable
on the redelivery bond. So, if the surety on theredelivery bond was not notified of the plaintiff's claim
for damages, the surety cannot be held liable on its redelivery bond for the damages adjudged
against the principal. It is necessary that the surety be notified and that its liability be included in the
final judgment against the principal (Luneta Motor Co. vs. Menendez 117 Phil. 970).

The writ of execution issued against the counterbond for the dissolution of an injunction is void if it
was issued without notice to the surety and after the judgment on the merits had become executory.
The surety's liability should have been included in the final judgment (Cajefe vs. Fernandez, 109
Phil. 743).

If the judgment awarding damages against the principals in the counterbonds filed for the lifting of
the receivership was appealed to the Court of Appeals and the plaintiff-appellee filed in the trial court
(not in the appellate court) his application for damages against the sureties in the counterbonds, the
trial court cannot hear the said application after the record is remanded to it because, by then, the
decision of the appellate court had become final and the damages to be awarded against the
sureties could no longer be included in that judgment. The application for damages against the
sureties should have been filed in the Court of Appeals (Luneta Motor Co. vs. Menendez 117 Phil.
970, 976).

The procedure in section 20 of Rule 57 should not be confounded with the procedure in section 17 of
the same rule regarding the surety's liability on the counterbond for the lifting of the preliminary
attachment. Under section 17, the surety may be held liable after notice and summary hearing
conducted after the judgment had become executory and the execution was returned unsatisfied
(Towers Assurance Corporation vs. Ororama Supermart, L-45848, November 9, 1977, 80 SCRA
262; Vanguard Assurance Corporation vs. Court of Appeals, L-25921, May 27, 1975, 64 SCRA 148).

The case contemplated in section 17 of Rule 57 is different from the case envisaged in section 20 of
that rule (Dizon vs. Valdes, L-23920, April 25, 1968, 23 SCRA 200; Visayan Surety & Insurance
Corp. vs. De Aquino, 96 Phil. 900).

Nor does section 20 of Rule 57 apply to cases where the surety bound himself to abide by the
judgment against his principal and thereby renounced his right to be sued or cited, or where the
surety guaranteed the return of certain goods and he did not raise the issue of lack of notice, or
where the sureties bound themselves to pay the plaintiff a definite amount (Aguasin vs. Velasquez,
88 Phil. 357; Lawyers Cooperative Publishing Co. vs. Periquet, 71 Phil. 204; Mercado vs.
Macapayag and Pineda, 69 Phil. 403 cited in Alliance Insurance case, 105 Phil. 1201).

Note that a different rule also obtains with respect to the surety in the bond of an administrator or
executor The nature of a surety's obligation on an administrator's bond, which makes him privy to the
proceeding against his principal, is such that he is bound and concluded, in the absence of fraud or
collusion, by a judgment against his principal, even though the surety was not a party to the
proceedings (Laurente vs. Rizal Surety & Insurance Co., Inc., L-21250, March 31, 1966, 16 SCRA
551, citing Philippine Trust Co. vs. Luzon Surety Co., Inc., 112 Phil. 44. See Cosme de Mendoza vs.
Pacheco and Cordero, 64 Phil. 34).
It should be underscored that in the instant case, although the surety's liability was not included in
the final judgment, which became executory, nevertheless, there was a timely application for
damages in the Court of Appeals which in its decision ordered the trial court to hear defendant-
appellee Fernando's claim for damages against the surety. That feature of the case removes it from
the coverage of the rule that the surety should be heard before the judgment becomes executory
and that his liability should be included in the final judgment.

WHEREFORE, we hold that the trial court has jurisdiction to comply with the directive of the Court of
Appeals but we reverse and set aside its order of July 14, 1978, requiring petitioner-appellant
Malayan Insurance Co., Inc. to pay the damages which it had adjudged against Makati Motor Sales,
Inc.

The trial court is required to hold a summary hearing wherein appellant surety should be given a
chance to contest the reality or reasonableness of respondent-appellee Rosendo Fernando's claim
for damages. After such hearing, or if the surety should waive it, the trial court should render the
proper judgment. No costs.

SO ORDERED.

G.R. No. 88379 November 15, 1989

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, GATES LEARJET CORPORATION and GATES LEARJET EXPORT
CORPORATION,respondents.

NARVASA, J.:

In December, 1981, Learjet Phil. Inc. commenced suit in the Regional Trial Court at Pasig against
Gates Learjet Corporation and Gates Learjet Export Corporation. 1 On said plaintiffs application, and
upon the posting of an attachment bond in its behalf by Philippine Charter Insurance Corporation (then
known as Phil-Am Assurance Co., Inc.), the Court issued a writ of preliminary attachment directed against
the defendants' properties. On the strength of the writ, the sheriff seized a twin engine airplane, a Learjet
35-A-3799, belonging to the defendants.

After due proceedings, judgment was rendered by the Trial Court in plaintiffs' favor, sentencing the
defendants to pay US$2,250,000.00 as actual damages, P200,000.00 as moral damages,
P100,000.00 as exemplary damages, as well as attorney's fees and costs. On appeal to the Court of
Appeals by the defendants, 2 however, this judgment was reversed. The decision of the Appellate
Tribunal, promulgated on December 10, 1986, disposed as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE,
and Civil Case No. 43874 of the Regional Trial Court of Pasig is DISMISSED for lack
of merit. For the wrongful attachment of Learjet aircraft 35A-44 owned by defendant-
appellant Gates Learjet Corporation, plaintiff-appellee Learjet Philippines, Inc. is
hereby ordered to pay to the former by way of actual damages the amount of
$73,179-36, P50,000.00 as exemplary damages, and the costs of the suit.

On December 16, 1986 four days after notice of the judgment was served on the defendants, they
filed with the Court of Appeals an "Urgent Petition to have Damages Awarded on Account of Illegal
Attachment Executed Against Attachment Bond Issued by the T.J. Philippine American Assurance
Co., Inc., Now Pan-Philippines General Insurance Corporation." The petition adverted to the
attachment bond posted by the surety firm in the amount of P2,000,000.00, and asked that the
"damages awarded defendants- appellants by reason of the wrongful attachment be enforced, after
proper notice to plaintiff and its bondsman and hearing of ... (the) application, jointly and severally
against both the plaintiff and the bonds-man-surety ... ." A copy of the petition was furnished the
surety. The plaintiff, in its turn, filed a motion for reconsideration of the decision of December 10,
1986.

By Resolution dated March 10, 1987, the Court of Appeals: 3 (1) denied the plaintiffs motion for
reconsideration for lack of merit; and (2) NOTED "defendants-appellants' application or claim for damages
against the surety" and RESOLVED "to refer the Said claim or application to the trial court and allow the
latter to hear and decide the same pursuant to Section 20, Rule 57 of the Rules of Court."

The plaintiff tried to have the Appellate Court's decision reviewed and reversed by us, but
failed. 4 We denied its petition for review by resolution dated August 10, 1987; and entry of the resolution
was made on February 26, 1988.

On remand of the case to the Trial Court, the defendants filed an "Urgent Petition to Have Damages
Awarded on Account of Illegal Attachment Executed Against Attachment Bond Issued by the Surety
Philippine American Assurance Co., Inc., now Pan-Philippines General Insurance Corporation"
dated December 16, 1986. The Court ordered execution of the judgment "against the plaintiff at
Suite 10 Prescon Strata 100 Emerald Avenue, Pasig, Metro Manila" in accordance with the Rules.
The writ issued on April 8, 1988.

Evidently, the sheriff sought to enforce the writ also against the surety, "Philippine Charter Insurance
Corporation ... (formerly Pan-Philippines General Insurance Corporation)." Said surety thereupon
filed with the Trial Court an "Urgent Motion to Recall against Nullify Sheriffs Notice of Enforcement of
Writ of Execution, and for Issuance of Restraining Order/Writ of Restraining Injunction." It contended
that there was in truth no judgment against it "due to the wrongful attachment of ... (the defendants')
Learjet Aircraft 35A-44," that since neither Section 20, Rule 57 of the Rules of Court nor the
Resolution of the Court of Appeals of March 10, 1987 had been complied with, there existed no
award of damages against it under its attachment bond, and enforcement of execution against said
bond would be contrary to due process.

The Trial Court forthwith restrained enforcement of the writ of execution against the surety and set
the surety's motion for hearing in the morning of May 27, 1988. After receiving the parties'
arguments, the Court promulgated an Order on June 14, 1988 overruling the movant surety's
argument that it (the Court) had lost competence to hear and determine the application or damages
against the attachment bond because the judgment of the Court of Appeals had become final and
executory. The Court observed that:

What is contemplated under Section 20, Rule 57, is that if no application for
damages is made before the entry of the final judgment the surety on the bond is
relieved from liability therefor. (Visayan Surety and Insurance Corporation v. Pascual
[85 Phil. 779], citing Facundo vs. Tan and Facundo vs. Lim). In the case at bar, an
application was made before the entry of final judgment ... . What was merely
deferred was the hearing of said application before the trial court. In fact, said
application was duly noted by the Honorable Court of Appeals in its resolution.
Hence, an application for damages was filed in time.

Considering the foregoing, and in order to determine the extent of the liability of both
principal and surety on the attachment bond, a hearing is necessary.
The Court also resolved to issue, upon a bond of Pl,000,000.00, a writ of preliminary injunction
restraining the sheriffs from enforcing the writ of execution or otherwise executing the judgment
against the surety "until the application for damages on the attachment bond is heard and decided;"
and set the hearing on the matter on August 9, 1988.

The surety moved for reconsideration, but its motion was denied by Order handed down on October
13, 1988. The surety then went to the Court of Appeals again, where it sought annulment of the Trial
Court's Orders of June 14, 1988 and October 13, 1988. Its petition for certiorari, prohibition and
preliminary injunction, filed on November 3, 1988, was docketed as CA-G.R. No. SP No. 15987. In it
the surety argued that it had been denied its day in court when, without its being present at the trial,
the defendants had "adduced evidence in support of ... (the) damages" eventually awarded by the
Court of Appeals; that said defendants had "fatally failed to file an application for damages on
account of the wrongful attachment," and consequently, the Court had "no more jurisdiction to set for
hearing ... (the) urgent petition" (to have damages awarded on account of illegal attachment
executed against attachment bond, etc.).

The Appellate Court's verdict however again went against the surety. By Decision promulgated on
March 8, 1 989, 5the petition was "DENIED DUE COURSE." According to the Court, (1) the "general
prayer" in the petition (to hold surety liable on its bond) dated December 16,1986 "for such further reliefs
justified in the premises" was "broad enough to include and embrace an application or claim for whatever
damages movants sustained during the pendency of the appeal, by reason of ... "the wrongful attachment
...", (2) such a finding was consistent with "Supreme Court rulings' and the earlier "Resolution of March
10, 1987" noting "defendants-appellants' application or claim for damages against the surety" and
referring it "to the, trial court ... pursuant to Section 20, Rule 57 of the Rules of Court;" and (3) "what must
have been contemplated ... (in said application or claim for damages) were not the damages awarded in
CA-G.R. CV No. 08585, 6 but the damages which applicants or claimants could have suffered during the
pendency of said appeal, as a consequence of the wrongful attachment found by final judgment," for
otherwise "there would have been no need for this Court to allow and, in effect, direct the trial court a quo
'to hear and decide' subject post-judgment petition in CA-G.R. CV No. 08585." The surety's motion for
reconsideration dated March 28, 1989 was denied by Resolution dated May 17, 1989.

The surety is once again before us, 7 this time praying for reversal of the Appellate Tribunal's aforesaid
judgment of March 8, 1989. Once again it will fail, no merit being discerned in its petition for review
on certiorari.

By settled rule a writ of preliminary attachment may issue once the Court is satisfied, on
consideration ex parte of the application and its supporting affidavits and documents, 8 or after
healing, as the court may in its discretion consider proper, that any of the grounds specified by law exists,
and an acceptable bond is given by the applicant 9

... executed to the adverse party in an amount ... fixed by the judge, not exceeding
the applicant's claim, conditioned that the latter will pay all the costs which may be
adjudged to the adverse party and all damages which he may sustain by reason of
the attachment, if the court shall finally adjudge that the applicant was not entitled
thereto.

The filing of the attachment bond by a surety undoubtedly connotes and operates as a voluntary
submission by it to the Court's jurisdiction, and of course binds it to faithfully comply with its specific
obligations under its bond.

The surety does not, to be sure, become liable on its bond simply because judgment is subsequently
rendered against the party who obtained the preliminary attachment. The surety becomes liable only
when and if "the court shall finally adjudge that the applicant was not entitled to the attachment." This
is so regardless of the nature and character of the judgment on the merits of the principal claims,
counterclaims or cross-claims, etc. asserted by the parties against each other. Indeed, since an
applicant's cause of action may be entirely different from the ground relied upon by him for a
preliminary attachment, 10 it may well be that although the evidence warrants judgment in favor of said
applicant, the proofs may nevertheless also establish that said applicant's proferred ground for
attachment was inexistent or specious and hence, the writ should not have issued at all; i.e., he was not
entitled thereto in the first place. In that event, the final verdict should logically award to the applicant the
relief sought in his basic pleading, but at the same time sentence him usually on the basis of a
counterclaim to pay damages caused to his adversary by the wronful attachment. 11

When the final judgment declares that the party at whose instance an attachment had issued was
not entitled thereto, there is no question about the eminent propriety of condemning that party to the
payment of all the damages that the wrongful attachment had caused to the party whose property
had been seized under the attachment writ.

But what of the surety's liability? The surety on an attachment bond, as already pointed out, assures
that the applicant "will pay all the costs which may be adjudged to the adverse party and all
damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the
applicant was not entitled thereto." 12 In other words the surety, by submitting its attachment bond, binds
itself solidarily to make the same payments which its principal the party at whose instance the
attachment issues may be condemned to make, to compensate for the damages resulting from the
wrongful attachment, although unlike its principal, its liability is limited to the amount stated in its bond.

The final adjudication "that the applicant was not entitled" to the attachment, standing alone, does
not suffice to make the surety liable. It is necessary, in addition, that the surety be accorded due
process, i.e., that it be given an opportunity to be heard on the question of its solidarily liability for
damages arising from wrongful attachment. This, by established rule and practice, is accorded to the
surety at a summary hearing, scheduled after, judgment on presentation of an application to hold it
answerable on its bond. Evidently, such a summary hearing is not rendered unnecessary or
superfluous by the fact that the matter of damages was among the issues tried during the hearings
on the merits, unless of course, the surety had previously been duly impleaded as a party, or
otherwise earlier notified and given opportunity to be present and ventilate its side on the matter
during the trial. The procedure for the rendition of a binding directive on the surety upon its solidarily
liability for damages for wrongful attachment is indicated in Section 20, Rule 5'7 of the Rules of
Court. The section reads as follows:

Sec. 20. Claim for damages on account of illegal attachment. If the judgment on
the action be in favor of the party against whom attachment was issued, he may
recover upon the bond given or deposit made by the attaching creditor,, any
damages resulting from the attachment. Such damages may be awarded only upon
application and after proper hearing, and shall be included in the final judgment. The
application must be filed before the trial or before appeal is perfected or before the
judgment becomes executory, with due notice to the attaching creditor and his surety
or sureties, setting forth the facts showing his right to damages and the amount
thereof.

If the judgment of the appellate court be favorable to the party against whom the
attachment was issued, he must claim damages sustained during the pendency of
the appeal by filing an application with notice to the party in whose favor the
attachment was issued or his surety or sureties. before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard
and decided by the trial court.
Certain principles are derived from this provision of the Rules. A party against whom a writ of
preliminary attachment issues may impugn the writ by alleging and proving inter alia that the
applicant was not entitled thereto, i.e., that the asserted ground for attachment was inexistent, or the
amount for which the writ was sought was excessive, etc., this, by appropriate motion. He may also
claim damages on account of the wrongful attachment through an appropriate pleading, such as a
counterclaim, or other form of application. What is important is that the "application must be filed
before the trial or before appeal is perfected or before the judgment becomes executory, with due
notice to the attaching creditor and his surety or sureties, setting forth the facts showing his right to
damages and the amount thereof."

In the case at bar, since the Trial Court's decision had gone against the defendants, and no
irregularity had been adjudged as regards the preliminary attachment, the latter obviously had no
occasion to apply for damages from wrongful attachment although they could have so applied
therefor because, as already pointed out, it is entirely possible under the law that an applicant for
preliminary attachment be adjudged entitled to relief on his basic claimand at the same
time pronounced as not entitled to the attachment.

As things turned out, the Trial Court's judgment was reversed by the Court of Appeals; the latter
dismissed the complaint, declared the plaintiff not entitled to the attachment and sentenced it to pay
to the defendants damages on account thereof And it was only at this time that the defendants could
have presented and did actually present their petition to enforce the surety's liability on its bond. This
petition, as aforestated, the Court of Appeals (a) noted and (b) referred to the Trial Court with
instructions "to hear and decide ... pursuant to Section 20, Rule 57 of the Rules of Court." Under the
circumstances, and in the light of the explicit provisions of said Section 20, Rule 57, there can be no
debate about the seasonablenes of the defendants' application for damages and the correctness of
the referral by the Court of Appeals of the application for damages to the Trial Court for hearing and
determination.

Under the circumstances, too, there can be no gainsaying the surety's full awareness of its
undertakings under its bond: that, as the law puts it: "the plaintiff will pay all costs which may be
adjudged to the defendant(s), and all damages which may be sustained by reason of the
attachment, if the same shall finally be adjudged to have been wrongful and without cause," and that
those damages plainly comprehended not only those sustained during the trial of the action but also
those during the pendency of the appeal. This is the law, 13 and this is how the surety's liability should
be understood. The surety's liability may be enforced whether the application for damages for wrongful
attachment be submitted in the original proceedings before the Trial Court, or on appeal, so long as the
judgment has not become executory. The surety's liability is not and cannot be limited to the damages
caused by the improper attachment only during the pendency of the appeal. That would be absurb. The
plain and patent intendment of the law is that the surety shall answer for all damages that the party may
suffer as a result of the illicit attachment, for all the time that the attachment was in force; from levy to
dissolution. The fact that the attachment was initially (and erroneously) deemed correct by the Trial Court,
and it was only on appeal that it was pronounced improper, cannot restrict recovery on the bond only to
such damages as might have been sustained during the appeal. The declaration by the appellate court
that the applicant for attachment "was not entitled thereto," signifies that the attachment should not have
issued in the first place, that somehow the Trial Court had been misled into issuing the writ although no
proper ground existed therefor. The logical and inevitable conclusion is that the applicant for attachment
and the surety on the attachment bond are solidarily liable for all the damages suffered by the party
against whom the writ is enforced, except only that the surety's liability is limited to the amount set forth in
its bond.

The fact that the second paragraph of the rule speaks only of "damages sustained during the
pendency of the appeal" is of no moment; it obviously proceeds from the assumption in the first
paragraph that the award for the damages suffered during the pendency of the case in the trial court
was in fact "included in the final judgment" (or applied for therein before the appeal was perfected or
the judgment became executory); hence, it states that the damages additionally suffered thereafter,
i.e., during the pendency of the appeal, should be claimed before the judgment of the appellate
tribunal becomes executory. It however bears repeating that where, as in the case at bar, the
judgment of the Trial Court has expressly or impliedly sustained the attachment and thus has given
rise to no occasion to speak of, much less, file an application for damages for wrongful attachment,
and it is only in the decision of the Court of Appeals that the attachment is declared wrongful and
that the applicant "was not entitled thereto," the rule is, as it should be, that it is entirely proper at this
time for the application for damages for such wrongful attachment to be filed i.e., for all the
damages sustained thereby, during all the time that it was in force, not only during the pendency of
the appeal. And the application must be filed "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."
In such a situation, the appellate court may resolve the application itself or allow it "to be heard and
decided by the trial court."

WHEREFORE, the petition is DISMISSED for lack of merit, the costs against the petitioner.

SO ORDERED.

Zaragoza vs. Fidelino (supra)

G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled,
"Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" which
affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-
1215 and the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the
car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly
being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses
of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved
to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although
at an amount lower than private respondent's claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,
however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a
petition for certiorari with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.
However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending appeal. The order was assailed by
petitioner in a petition for certiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No.
10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without Zenith's evidence, was
dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages,

exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary damages, the trial court awarded
P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial court
awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied;Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a
defendant, they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised
Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left to the discretion of the court according
to the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding
moral damages in case of breach of contract, there must be a showing that the breach was wanton
and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was
no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent
within the two-month period was that the parties could not come to an agreement as regards the
amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction
for the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-
Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as
the insurance company had not acted in wanton, oppressive or malevolent manner. The same is
true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this
case considering that there were other petitions filed and defended by private respondent in
connection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no
basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary
damages is hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

 4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated. SO ORDERED.

G.R. No. L-12736 July 31, 1961

FRANCISCO L. LAZATIN, plaintiff-appellant,

vs.
ANGEL C. TWAO and GREGORIO T. CASTRO, defendants-appellees.

PAREDES, J.:

The case at bar had its genesis in Civil Case No. 213, CFI, Manila, entitled "Angel C. Twao and
Gregorio T. Castro, plaintiffs, versus F. L. Lazatin, et al., defendants, Dionisio P. Tanglao,
Intervenor," for the recovery of P35,000.00, plus interest, realized in connection with the purchase by
them (plaintiffs and defendants) from the U.S. government, and the subsequent sale, of some 225
auto-trucks.

After trial, the CFI of Manila dismissed the complaint as well as the intervention. The order of
dismissal was taken to the Court of Appeals (CA-G.R. No. 4533-R), which, on November 3, 1950,
rendered judgment reversing the said order and declaring that plaintiffs and defendants were co-
owners in the business of buying and selling surplus auto-trucks, and ordered the defendants (one of
them Lazatin) to pay to the plaintiff s therein, the sum of P10,000.00, with legal interest from the
filing of the complaint.

The said decision became final; it was executed, with the levy of the properties of defendant Lazatin
and their subsequent sale at public auction, wherein the plaintiffs Twao and Castro were the
purchasers. Before the expiration of the redemption period, on August 2, 1952, defendant Lazatin,
deposited with the Sheriff of Pampanga the sum of P13,849.88, redemption price.

On August 9, 1952, the same Francisco Lazatin, filed the present action, to recover from the
same Twao and Castro the sum of P19,676.09, supposedly a balance of the proceeds of auto-
trucks, sold directly to purchasers by said defendants. On the same date, plaintiff Lazatin, alleging
that "there is no security whatsoever for the payment of the amount claimed in the complaint and
that the defendant defendants are removing or are about to remove or dispose of their property with
intent to defraud their creditors, particularly the plaintiff," secured a writ of attachment on the amount
he deposited, and pursuant thereto, the Sheriff of Pampanga refused to deliver the sum of
P13,849.88, which should have been paid to the herein defendants.

On August 12, 1952, the herein defendants filed an Urgent Motion to Dissolve the Writ of Preliminary
Attachment on the following grounds:

1. That the plaintiff has no cause of action because (a) the right of action, if any, has
prescribed, and (b) the cause of action is barred by a prior judgment; and

2. That the allegations in the petition for the issuance of the writ and in the affidavit in support
thereof are false.

On September 10, 1952, the lower court, after due hearing, dissolved the writ.
Subsequently, the defendants filed their answer and after the customary admissions and denials,
interposed as special defenses, the same grounds averred in the motion to lift the writ and
counterclaimed:

1. That the plaintiff herein has filed a clearly unfounded civil action against the herein
defendants as a result of which the latter had suffered actual or compensatory damages by
way of attorney's fees in the sum of P3,000.00

2. That as a result of the wrongful attachment and the false statements made by the
plaintiffs, under oath, in support of his Ex-Parte Petition for the Writ, the herein defendants
have suffered moral damages to the amount of P10,000.00

3. That the wrongful attachment against the properties and the sum of P13,849.88 had
caused actual damages to the herein defendants, represented by the legal interest on such
amount.

On May 9, 1953, plaintiff Lazatin died and on March 10, 1954, Gil Gotiangco was appointed and
qualified as administrator of plaintiff's estate.

On the date set for hearing, the defendants herein were granted, a preliminary hearing on their
special defenses (Sec. 5, Rule 8). The lower court on November 12, 1954, entered an order,
dismissing the complaint on the ground that it was barred by a prior judgment and by the statute of
limitations. At the same time, the Court set the case for hearing on defendants' counterclaim. On
October 28, 1955, the trial court rendered judgment, ordering the estate of Lazatin to pay the
defendants therein the following sums:

(1) P3,000.00 for the fees of Attorney Manuel O. Chan;

(2) P,500.00 for moral damages to each of the defendants;

(3) Six percent (6%) interest on the amount of P13,849.88 from August 6, 1952 until said
amount is actually delivered to and receipted by the defendants; and

(4) To pay the costs.

Judgment is also rendered against the Central Surety and Insurance Co., which is solidarily
liable with the Estate of the deceased plaintiff Francisco L. Lazatin on its bond for the sum of
P20,000.00, filed by said Company for the issuance on the writ of attachment for the
amounts mentioned in Nos. (2) and (3) of the dispositive part of this decision.

Upon appellant's request, the appeal was certified by the Court of Appeals to this Court, as the
issues involved therein are purely legal in character.

The law on damages is found on Title XVII of the Civil Code (Arts. 2195 to 2235). The rules
governing damages laid down in other laws, and the principles of the general law on damages are
adopted in so far as they are not in consistent with the Code (Arts. 2196 and 2198). Article 2197
mentions the kind of damages recoverable, among which are (1) actual or compensatory and (2)
moral Article 2219 provides that moral damages may be recovered in the following and analogous
cases . . . (3) malicious prosecution. There is an abundance of case holding that the action to
recover damages from the attachment plaintiff, for the wrongful issuance and levy of an attachment
(malicious attachment) is identical or is analogous to the ordinary action for malicious
prosecution (Eastern v. Bank of Stockton, 66 Cal. 123, 56 Am. Rep. 77, 4 Pac. 1106; Robinson v.
Kellum 6 Cal. 399; Grant v. Moore, 29 Cal. 644; King v. Montgomery 50 Cal. 115; Gonzales v.
Cobliner 68 Cal 151, 8 Pac. 697; Asevado v. Orr 100 Cal. 293, 34 Pac. 777). It may logically be
inferred, therefore, that in order hat moral damages may be recovered in connection with he writ of
attachment under consideration, malice is an essential ingredient thereof. In Songco v. Sellner, 37
Phil. 154, where the evidence showed that defendant offered damages to his credit, as a result of
writ of attachment wrongfully issued, the Court declared that such damages were remote and
speculative and that there was no 'ending that the attachment was maliciously sued out. In Aboitiz v.
Da Silva, 45 Phil. 883, the Court refused to grant damages for loss of reputation by reason of an
improper attachment, on the ground that there was no evidence from which malice on the part of the
plaintiff or loss of credit to the defendant, may be inferred or presumed. In Masterson v. Smith
Navigation, 60 Phil. 366 ' damages to good name, allegedly suffered by the defendant as a result f a
writ of attachment wrongfully issued, were disallowed in the ground that such damages were very
problematical. In American jurisdictions where the principles of the general laws on damages in
common law (adopted by Art. 198 of the new Civil Code), are in force, only actual or compensatory
damages are recoverable for wrongful but not malicious attachment. An allowance may be made r
injury to feeling if the attachment was sued out maliciously and without probable cause; but in the
absence of his element there can be no recovery (6 C.J. 533- 534; 541). "The authorities are quite
uniform in holding that, in the absence of malice, injuries to credit, reputation and business are too
remote and speculative to be recovered" (Union Nat. Bank v. Cross, 100 Wis. 174, 75 NW 992).
There is no issue of malice, damages must be compensatory merely, and confined to the actual loss
from deprivation of the property attached or injury to it, or in case of closing business, to the
probable profits of the business, during the time of its stoppage (Holiday Bros. Cohen 34 Ark. 707).
All of which go to show that the attachment defendant is not entitled to moral damages, unless it is
alleged and established that the writ was maliciously sued out.

This notwithstanding the defendants-appellees invoke the following rule, in support of their thesis.

SEC. 4. Bond required from plaintiff. The party applying for the order must give a bond
executed to the defendant in amount to be fixed by the judge, not exceeding the plaintiff
claim that the plaintiff will pay all the costs which it may be adjudged to the defendant and all
damages which he may sustain by reason of the attachment, if the court shall finally adjudge
that the plaintiff was not entitled thereto. (Rule 59, R.C.)

They claim that under the above section, malice and want of probable cause are not essential (II
Moran's Rules of Court , 2nd Ed. pp. 19-20); that the language used therein is clear and its intent
and purpose are obvious; its provision cannot be given a broader scope than what it imports; and the
element of malice cannot be implied from the terms thereof. It is finally argued that as the
attachment-plaintiff, according to the rule, should pay "all the damages" which the attachment
defendant might sustain by reason of the attachment, if the court shall finally adjudge that the
plaintiff was not entitled thereto, the ruling of the trial court that the appellant should pay the
appellees moral damages, is correct. We do not share this view. It should be observed that Sec. 4 of
Rule 59, does not prescribe the remedies available to the attachment defendant in case of a
wrongful attachment, but merely provides an action for recovery upon the bond, based on the
undertaking therein made and not upon the ability arising from a tortious act, like the malicious suing
of an attachment. Under the first, where malice is not essential, the attachment defendant, is entitled
to recover only the actual damages sustained by him by reason of the attachment. Under the
second, where the attachment is maliciously sued out, the damages recoverable may include a
compensation for every injury to his credit, business or feelings (Tyler v. Mahoney 168 NC 237, 84
SE 362; Pittsburg etc. C 73, 47 SE 234). And considering the fact that the rules of court are of older
vintage than the new Civil Code, the matter of damages in the said rules should be encompassed
within the framework Of the Civil Code (Art. 2196 Civil Code). It is quite true that said section 4
employs the expression "all damages", but this should be understood to refer to the damages
resulting from the undertaking itself, the recovery of which is subject to "the principles of the general
law on damages", earlier discussed. (Art. 2198, Civil Code, supra).

A cursory perusal of the decision would show that the trial court did not make any express ruling that
the writ of attachment was maliciously sued out by the plaintiff or any finding of facts or
circumstances from which it may be necessarily inferred that the attachment was thus obtained. The
decision does not make any finding that the defendants-appellees did in fact suffer mental anguish
or injury to their credit or reputation. The decision simply states: "Coming now to the moral damages
which defendants have suffered consisting of mental anguish, serious anxiety and besmirched
reputation, it is believed that sing businessmen of good commercial standing and reputation, each of
them should be awarded at least P2,500.00." Moreover the dissolution of the writ was due to a
technicality No moral damages can be inferred from the mere act that the redemption price to which
defendants were entitled, had been retained by the provincial sheriff for a period of 38 days. The trial
court held that the present action was already investigated and adjudged in CA-G.R. To 4533-R and
the right of action was barred by the state of limitations, and that since the writ of attachment was
only a remedy adjunct to the main suit, plaintiff-appellant was not entitled to the writ. While the lower
court declared that the defendants-appellees had an outstanding balance of P171,947.80, in the
bank and that they were not disposing their property in fraud of creditors or of the plaintiff, as alleged
in the petition for the issuance of the writ still the said court did not make any finding that the said
petition was maliciously sued out. We are, therefore, the opinion that the defendants-appellants are
not entitled to moral damages.

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be covered, except: . . .

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff.

xxx xxx xxx

(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered." (Art. 2208, Civil Code).

Defendants' counterclaim for the recovery of attorney's fees is based on paragraph 4 of the cited
provision, for legal services rendered in defending the main suit. There is no showing in the decision
appealed from that plaintiffs' action is "clearly unfounded". Plaintiffs-appellants' complaint was not
dismissed because the facts alleged therein were found untrue, but on purely technical grounds; the
special defenses of prescription of the action and res adjudicata. While it may be hard to believe that
the plaintiff had labored under the impression that the matters involved in his complaint had not been
adjudicated in the previous litigation between the same parties (Civil Case No. 213 CFI Manila),
because plaintiff himself was a lawyer such error of judgment on his part would not justify the
inference that the action was "clearly unfounded". As aptly observed by appellants' counsel,
defenses as the one interposed by appellee in their counterclaim "raise questions of law not always
of obvious and easy solution." While it may appear also that the move was a scheme to prevent the
defendants-appellees from reaping the benefits of the final judgment rendered in their favor in said
case CA- G.R. No. 5433-R, still one cannot nullify, without cause, the good and honest motive,
which should be presumed, when a litigant goes to court for the determination of his alleged right.

Withal, and considering the fact that defendants-appellant lees were drawn into this litigation by
plaintiff-appellant and were compelled to hire an attorney to protect and defend them, and taking into
account the work done by said attorney, as reflected in the record, throughout the proceedings, we
deem it just and equitable to award at attorney's fees for defendants-appellees. The sum of
P3,000.00 adjudicated by the trial court, is reasonable under the circumstances (par. 11 Art. 2208,
Civil Code).

It appears that plaintiffs-appellants have abandoned their appeal with respect to the payment of 6%
interest in the amount of P13,849.88.

Modified, with the elimination of moral damages, the decision appealed from is affirmed in all other
respects. Costs against plaintiff-appellant.

G.R. No. 104047 April 3, 2002

MC ENGINEERING, INC., petitioner,

vs.
THE COURT OF APPEALS, GERENT BUILDERS, INC. and STRONGHOLD INSURANCE CO.,
INC.,respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking the reversal of
the decision of the Court of Appeals dated November 14, 19911 and its resolution dated February 5,
1992.2 The Court of Appeals reversed the decision dated July 15, 1989 of the Regional Trial Court,
Branch 85,3 Quezon City, in Civil Case No. Q-44392 dismissing the Complaint for Sum of Money
With Preliminary Attachment and Damages filed by respondent Gerent Builders, Inc. ("respondent
Gerent" for brevity) against petitioner MC Engineering, Inc., ("petitioner" for brevity). The trial court
ordered respondents Gerent and Stronghold Surety and Insurance Company ("respondent Surety"
for brevity) to pay petitioner, jointly and severally, damages and attorneys fees.

The Facts

The undisputed facts in this case as found by the trial court and quoted by the Court of Appeals in its
assailed decision are as follows:

"x x x On October 29, 1984, Mc Engineering, Inc. and Surigao Coconut Development
Corporation (Sucodeco, for short) signed a contract (Exh. B, also Exh. 5), for the restoration
of the latters building, land improvement, electrical, and mechanical equipment located at
Lipata, Surigao City, which was damaged by typhoon Nitang. The agreed consideration was
P5,150,000.00** of which P2,500,000.00*** was for the restoration of the damaged buildings
and land improvement, while the P3,000,000.00 was for the restoration of the electrical and
mechanical works.

The next day, on October 30, 1984 defendant Mc Engineering and plaintiff Gerent Builders,
Inc. entered into an agreement wherein defendant subcontracted to plaintiff the restoration of
the buildings and land improvement phase of its contract with Sucodeco but defendant
retained for itself the restoration of the electrical and mechanical works. The subcontracted
work covered the restoration of the buildings and improvement for P1,665,000.00 (Exh. C,
also Exh. 6).

Two (2) months later, on December 3, 1984, Sucodeco and defendant Mc Engineering
entered into an agreement amending provision No. VII, par 1 of their contract dated October
 29, 1984, by increasing the price of the civil works from P2,250,000.00 to P3,104,851.51, or
an increase of P854,851.51, with the express proviso that except for the amendment above
specified, all the other provisions of the original contract shall remain the same (Exh. L).

The civil work aspect consisting of the building restoration and land improvement from which
plaintiff would get P1,665,000.00 was completed (TSN., p. 14, July 30, 1986) and the
corresponding certificate of acceptance was executed (Exh. F), but the electrical works were
cancelled (Tsn., p. 8, July 30, 1986; Tsn., p. 19, Feb. 11, 1987). On January 2, 1985, plaintiff
received from defendant the amount of P1,339,720.00**** as full payment of the sub-contract
price, after deducting earlier payments made by defendant to plaintiff, as evidenced by the
affidavit executed by plaintiffs president, Mr. Narciso C. Roque (Exh. 1), wherein the latter
acknowledged complete satisfaction for such payment on the basis of the Statement of
Account (Exh. 2, 2-a & 2-b) which plaintiff had earlier forwarded to defendant.

Nevertheless, plaintiff is still claiming from defendant the sum of P632,590.13 as its share in
the adjusted contract cost in the amount of P854,851.51, alleging that the sub-contract is
subject to the readjustment provided for in Section VII of the agreement, and also the sum of
P166,252.00 in payment for additional electrical and civil works outside the scope of the sub-
contract."4

Petitioner refused to pay respondent Gerent. Thus, on March 21, 1985, respondent Gerent filed the
complaint against petitioner. On March 28, 1985, the trial court issued the corresponding writ of
preliminary attachment upon the filing by respondent Gerent of a P632,590.13 bond issued by
respondent Surety.5 On April 24, 1985, petitioner moved to quash the writ on the ground that it was
improperly issued. The trial court denied the motion.

Petitioner assailed the denial in a petition for certiorari6 filed with the Court of Appeals. In a resolution
dated October 17, 1986, the Court of Appeals7 rendered a decision granting the petition, as follows:

"Wherefore, finding merit to the petition, the writ of attachment dated March 28, 1985, and
the order dated August 14, 1985, denying the motion to quash writ of attachment should be
as it is hereby declared null and void, and the execution made by respondent Deputy Sheriff
Cristobal C. Florendo, under the writ of attachment issued should be as it is hereby nullified.
The respondent Sheriff is hereby directed to restore ownership of the properties heretofore
seized and attached to petitioner. No pronouncement as to costs."8

On July 13, 1987, the trial court ordered the return of petitioners properties that deputy sheriff
Cristobal C. Florendo attached and seized. The sheriff reported to the court that he never seized a
single property of petitioner but merely conducted a "paper levy".

On January 5, 1988, petitioner filed an application against the attachment bond to recover damages
it suffered due to the wrongful issuance of the writ of attachment. Respondent Surety opposed the
application.

In its Answer, petitioner vigorously denied respondent Gerents causes of action. Petitioner
counterclaimed for damages and attorneys fees due to the improper issuance of the writ of
attachment.

On July 15, 1989, after trial on the merits, the trial court rendered its decision, the dispositive portion
of which reads:
 "WHEREFORE, judgment is hereby rendered against the plaintiff and in favor of the
defendant, as follows:

1. Dismissing the instant case;

2. Ordering the plaintiff and Stronghold Surety And Insurance Company to pay defendant
M.C. Engineering, Inc., jointly and severally, the sum of P70,000.00 as moral damages;
P30,000.00 as exemplary damages; and P50,000.00 as attorneys fees, plus costs.

SO ORDERED."9

From the foregoing decision, respondents filed separate notices of appeal on September 5, 1989
and November 2, 1989, respectively.10

The Court of Appeals rendered the assailed Decision on November 14, 1991.11 On February 5,
1992, the Court of Appeals denied petitioners motion for reconsideration.12

The Ruling of the Court of Appeals

The Court of Appeals ruled respondent Gerents claim meritorious, declaring that Gerent is entitled
to share 74% of the price increase in the civil works portion of the main contract.

First, the Court of Appeals found that the price increase arose from a second detailed estimate of the
costs of civil works allegedly submitted by respondent Gerent to petitioner. Thus, the Court of
Appeals stated:

"xxx. To obtain an adjustment in the contract price, it appears that plaintiff-appellant, as sub-
contractor, submitted a second detailed estimate of the costs of civil works (Exh. D) to
appellee which, after marking up the figures therein to reflect its share, attached the same to
its letter of proposal for an increase in the contract price eventually submitted to
SUCODECO. On the basis of the estimates, the latter agreed to increase the cost for the full
restoration of its typhoon damaged buildings and land improvement (civil works) from
P2,250,000.00 to P3,104,851.51 (Exh. L). Payment of this adjustment was made by
SUCODECO on December 27, 1984 (Exh. N). It is from this increase of P854,851.51 that
plaintiff-appellant sought to recover its share from the appellee."13

"Appellee denies the submission of the second detailed estimates by plaintiff-appellant. It

must be observed, however, that appellee is an electro-mechanical engineering firm which
becomes an accredited civil contractor only for as long as it has civil engineers to do the civil
works. Thus, in the SUCODECO project, appellee hired plaintiff-appellant, an undisputed
civil contractor, to furnish civil engineering services. Taking into account the technical
expertise required to draw up such a detailed estimate of civil works as Exh. D and the
absence of proof that other civil contractors apart from plaintiff-appellant was ever engaged
by appellee, it is undoubtedly plausible that plaintiff-appellant made the estimates which
appellee submitted to SUCODECO, with the corresponding adjustments in the costs."14

Second, the Court of Appeals noted that the price increase preceded the cancellation of petitioners
electrical and mechanical works portion of the main contract.

Petitioners president, Mario Cruel, testified that on December 3, 1984, Sucodeco approved the price
increase for the civil works portion of the main contract. A week later, or on December 14, 1984,
Sucodeco wrote to petitioner canceling the electrical and mechanical works portion of the main
contract.15 The Court of Appeals thus reasoned:

"From the foregoing, it is apparent that the adjustment in the price of civil works preceded the
cancellation of the electro-mechanical works. If it is indeed true that the adjustment was for
the sole benefit of appellee for its preparatory expenses and lost profits, the increase would
have been effected simultaneously with or after the cancellation of the electrical and
mechanical works. The fact that the amendment in the contract was made before the
cancellation could only mean that SUCODECO agreed to increase the cost of the civil works
not to compensate appellee for the then still subsisting original agreement but as a result of
the higher estimates submitted by the contractor and subcontractor on the expenses for the
civil works."16

Third, the Court of Appeals did not consider the absence of an itemized listing of material and labor
costs relevant to respondent Gerents right to a share in the price increase.

The Court of Appeals ruled that it is Sucodeco, the project owner, and not petitioner who can
question the true value of the material and labor costs. Since Sucodeco did not raise any question, it
must have agreed to the price increase even without the submission of the true value. Consequently,
the Court of Appeals held that it was petitioners obligation to pay respondent Gerent its share of the
price increase in accordance with the subcontract.17

Fourth, the Court of Appeals found no evidence that petitioner spent substantial amounts on the
electrical and mechanical portion of the main contract to justify petitioners claim to the entire price
increase.

The Court of Appeals rejected petitioners claim that the price increase was intended to compensate
petitioner for the losses it suffered due to the cancellation of the electrical and mechanical portion of
the main contract. The Court of Appeals stated that:

"It is important to note that despite appellees posturing that it incurred expenses prior to the
cancellation of its contract, thus entitling it to the whole adjustment price, the records are
bereft of proof showing substantial amounts expended by appellee. To justify its entitlement
to the whole amount, it could have presented receipts reflecting purchases of materials,
drawing plans of engineering designs, detailed estimates of electrical and mechanical works
and testimonies of engineers allegedly mobilized to start the planning. As it is, the most that
appellee could produce were three (3) purchase invoices totaling P110,000.00. xxx."18

Fifth, the Court of Appeals found the quitclaim executed by respondent Gerent on January 2, 1985
vitiated with fraud since petitioner intentionally withheld from Gerent the information that on
December 3, 1984 Sucodeco had already agreed to the price increase. The Court of Appeals ruled:

"xxx. The mere fact that an affidavit or quitclaim was executed by Mr. Roque on behalf of his
company does not preclude or estop plaintiff-appellant from recovering its just share for it
appears that appellee intentionally withheld from Mr. Roque a vital information. Had he
known, it is highly unlikely that he will sign the quitclaim. We are more apt to believe Mr.
Roques protestations that he did not know about the adjustment. His testimony is
straightforward, consistent and unwavering. Moreover, a prudent man engaged in the
business of construction for decades and whose interests are amply protected by a written
instrument will not be easily convinced to acquiesce to have appellee get P1.4M of the whole
contractual price. Appellee apparently led Mr. Roque to believe that no adjustment was
 made to hide its big share in the contract. Considering the fraud employed against plaintiff-
appellant, the quitclaim is not binding at all."19

Thus, in the dispositive portion of the assailed decision the Court of Appeals decreed:

"WHEREFORE, premises considered, judgment is hereby rendered setting aside the

appealed decision of the lower court, and in lieu thereof defendant-appellee is ordered to pay
plaintiff-appellant the sum of P632,590.13 representing the increased contract price in the
sub-contract agreement, with the civil works by SUCODECO, and attorneys fees equivalent
to 25% of P632,590.13. Plaintiff-appellant and the surety-appellant are hereby adjudged to
solidarily pay appellee the sum of P5,000.00 as attorneys fees, in connection with the
wrongful obtention of the writ of attachment. With costs against defendant-appellee.

SO ORDERED."

Hence, this petition.

The Issues

In its Memorandum, petitioner raises the following issues:

1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AND GROSSLY ERRED IN HOLDING THAT RESPONDENT GERENT IS
ENTITLED TO P632,590.13 OR 74% OF THE PRICE INCREASE IN THE CIVIL WORKS
PORTION OF THE MAIN CONTRACT BETWEEN PETITIONER AND SUCODECO.

2. WHETHER OR NOT THE QUITCLAIM EXECUTED BY GERENT WAS VITIATED WITH

FRAUD.

3. WHETHER OR NOT PETITIONER IS ENTITLED TO ACTUAL, MORAL, AND

EXEMPLARY DAMAGES DUE TO THE WRONGFUL ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT.

4. WHETHER OR NOT THE AMOUNT OF P5,000.00 AS ATTORNEYS FEES IS

SUFFICIENT.

5. WHETHER OR NOT RESPONDENT GERENT IS ENTITLED TO ATTORNEYS FEES IN

THE AMOUNT EQUIVALENT TO TWENTY FIVE PERCENT (25%) OF P632,590.13.

The Ruling of the Court

The Court finds for petitioner MC Engineering, Inc.

The Quitclaim of Respondent Gerent

We begin with the issue of whether the so-called quitclaim executed by respondent Gerent is valid. If
the quitclaim is valid, then the quitclaim settles with finality all the claims of respondent Gerent,
rendering its complaint against petitioner without any legal basis. If fraud vitiated the quitclaim, then
it becomes necessary to determine if petitioner still owes respondent Gerent any amount under their
subcontract.
The quitclaim is embodied in the Affidavit executed on January 2, 1985 by respondent Gerents
president, Narciso Roque. The Affidavit is not the usual quitclaim which expressly discharges and
releases a party from any and all liabilities. The Affidavit does not contain such express language.
However, the Affidavit expressly acknowledges receipt by Gerent of "full payment" of the subcontract
price20 from petitioner. The effect, nevertheless, is the same because a creditor who receives and
acknowledges full payment from his debtor causes the extinguishment of his claim against the
debtor.21 Roque, however, now claims that had petitioner informed him of the price increase granted
by Sucodeco on December 3, 1984, he would not have signed the Affidavit of January 2, 1985.

The primary question to resolve is whether petitioner misled, deceived or coerced respondent
Gerent into signing the Affidavit. We rule petitioner did not. The Court of Appeals erred in declaring
that fraud vitiated the Affidavit.

Fraud is never presumed but must be established by clear and convincing evidence. There is no
evidence that petitioner misled, deceived or coerced respondent Gerents president into signing the
Affidavit. A mere preponderance of evidence is not even adequate to prove fraud. Thus,
in Maestrado vs. Court of Appeals, 22 the Court ruled that:

"The deceit employed must be serious. It must be sufficient to impress or lead an ordinarily
prudent person into error, taking into account the circumstances of each case. Silence or
concealment, by itself, does not constitute fraud, unless there is a special duty to disclose
certain facts. Moreover, the bare existence of confidential relation between the parties,
standing alone, does not raise the presumption of fraud."23(Emphasis supplied)

There was no proof of fraud presented by respondent Gerent other than its bare and
unsubstantiated allegations. On the contrary, respondent Gerents president, Roque, admitted that
he was fully aware and certain of the impending price increase. Thus, Roque testified:

"Q: Is it really true that you knew that there will be an increase because you were
discussing that already?

A: I know that there will be an increase.

Q: Because you were discussing it?

A: Yes. I know that there will be an increase, that is why I am always inquiring from Mr.
Cruel whether there was already an increase made and adjustment of the contract.

Q: When was the increase being discussed?

A: Even during the time of the initial start of the project it was already discussed.

Q: What particular month?

A: About November.

Q: And the contract was signed by Mario Cruel and Sucodeco in October? October 29,
1984?

A: Yes, sir." 24 (Emphasis supplied)

Despite his certainty that a price increase was imminent, Roque still signed the Affidavit without any
reservation. Since respondent Gerent was fully aware of the impending price increase, it cannot
claim that it was misled or deceived into signing the Affidavit. The non-disclosure by petitioner of the
price increase did not mislead or deceive respondent Gerent because Roque fully knew that the
price increase would in any event happen. Based on his own testimony, Roque voluntarily, willingly
and freely signed the Affidavit without any compulsion or coercion from anyone. Thus, Roque
testified:

"Q: But you know before hand that what you signed is supposed to be an affidavit?

A: Yes, sir.

Q: Did you make any complaint to MC Engineering?

A: No, sir.

xxx.

Q: When you signed that affidavit Exh. "1", did you not make any protests?

A: No, I did not make any protest."25

Petitioner was under no obligation to disclose to respondent Gerent, a subcontractor, any price
increase in petitioners main contract with Sucodeco. Respondent Gerent is not a party to the main
contract. The subcontract between petitioner and respondent Gerent does not require petitioner to
disclose to Gerent any price increase in the main contract. The non-disclosure by petitioner of the
price increase cannot constitute fraud or breach of any obligation on the part of petitioner.

Moreover, the record shows that the P139,720.30 representing final and full payment of the
subcontract price was paid by petitioner to respondent Gerent based on the statement of account
Gerent itself prepared and submitted to petitioner. This can be gleaned from the testimony of Roque,
to wit:

"Q: You have submitted likewise a statement of account?

A: Yes, sir.

Q: And this statement of account is this Annex "1" of the Answer?

A: Yes, sir.

ATTY. AGUINALDO

May we request that this statement of account be marked as Exh. "2".

And the signature above the typewritten name Narciso Roque including the words
submitted by, be marked as Exh. 2-A and the figure P139,720.30 be encircled and
be marked as Exh. 2-B."26
The Statement of Account signed and submitted by respondent Gerents president Roque to
petitioner provides as follows: xxx

Finally, the Affidavit that Roque signed provides as follows:

"A F F I D A V I T

I, NARCISO C. ROQUE, of legal age, Filipino, married with residence and postal address at
No. 58 Lanzones Street, Quezon City, Metro Manila, Philippines, after being sworn to in
accordance with law, do hereby depose and say:

1. That I am the CHAIRMAN/PRESIDENT of GERENT BUILDERS, INC.;

2. That my Company, GERENT BUILDERS, INC., has sub-contracted with MC

ENGINEERING, INC. for the restoration works of building and land improvement of
SUCODECO OIL HILLS, INC. located at Bo. Lipata, Surigao City;

3. That in the prosecution of restoration works and land improvement of SUCODECO

OIL MILLS, INC. Buildings, GERENT BUILDERS, INC. had fully paid the wages of
laborers, rentals of equipment and machineries used; and fully paid materials used in
the fabrication, delivery and erection of same, and that no supplier, laborer,
equipment and machinery owner has standing claim against my company;

4. That all taxes due in accordance with the project have been fully paid as of date;

5. That the ONE HUNDRED THIRTY NINE THOUSAND SEVEN HUNDRED

TWENTY PESOS AND 30/100 (P139,720.30) ONLY, released on January 2,
1985 REPRESENTS FULL PAYMENT OF MY CONTRACT WITH MC
ENGINEERING, INC.; (Emphasis supplied)

6. That this affidavit is being executed for purpose of collecting from MC

ENGINEERING, INC.;

7. That affiant, further sayeth none.

NARCISO C. ROQUE
Affiant" 29

(Emphasis supplied)

The inescapable conclusion is that the Affidavit was meant to be a total quitclaim by respondent
Gerent, fully discharging petitioner from whatever amounts it may have owed Gerent under the
subcontract. There is nothing in the Affidavit that reserves respondent Gerents right to collect a
portion of any price increase in the main contract. On the other hand, the Affidavit is clear,
unequivocal and absolute that respondent Gerent had received "full payment" under the subcontract.
Respondent Gerent is now estopped from impugning the validity of the Affidavit simply because
petitioner secured a higher price for the main contract.

Thus, in Maestrado vs. Court of Appeals30 we stated that:

 "The freedom to enter into contracts, such as the quitclaims, is protected by law and the
courts are not quick to interfere with such freedom unless the contract is contrary to law,
morals, good customs, public policy or public order. Quitclaims, being contracts of waiver,
involve the relinquishment of rights, with knowledge of their existence and intent to relinquish
them. xxx.

Quitclaims being duly notarized and acknowledged before a notary public, deserve full
credence and are valid and enforceable in the absence of overwhelming evidence to the
contrary."

In the instant case, the Affidavit is indisputably intended to document the fact that petitioner had fully
paid respondent Gerent for the subcontract work. Roques signature thereon attests to the truth of
the contents of the Affidavit. Thus, Roque again testified:

"Q: But you read the contents of the affidavit?

A: Yes, sir.

Q: You understand the contents of the affidavit when you signed?

A: Yes, sir."31

The execution of the Affidavit by Roque, president of respondent Gerent, finally puts to rest all the
claims of Gerent against petitioner under the subcontract. The very purpose of the Affidavit, just like
a quitclaim, is precisely to finally settle all the claims of respondent Gerent, regardless of the merits
of the claims. The Affidavit can be annulled only if it was procured through fraud. There is no
convincing evidence to establish that fraud vitiated the Affidavit. The fact that petitioner received a
windfall because of the price increase is not a reason to annul the Affidavit. Consequently, the
Affidavit renders moot and academic all the other issues raised in this petition. Nevertheless, the
Court will still painstakingly discuss and resolve the remaining issues raised by petitioner.

The 74%-26% Sharing.

The Court of Appeals upheld respondent Gerents theory that the subcontract provides for a 74%-
26% sharing between Gerent and petitioner in any price increase for the civil woks portion of the
main contract. Ruled the Court of Appeals:

"The question left to be determined is the amount of appellants share in the adjusted price.
The record reveals that out of the P2,250,000.00 originally earmarked for civil works, plaintiff-
appellant, as sub-contractor, was awarded P1,665,000.00 which is 74% of the first amount.
Moreover, in the second detailed estimate submitted by plaintiff-appellant to appellee, the
total cost of P2,297,590.00 was charged for civil works. This amount was subsequently
increased by appellee to P3,104,851.00***** when it submitted the estimates to SUCODECO.
Again, the mark-up was 26% of plaintiff-appellants estimate. Under the circumstances, the
parties had clearly intended to split the cost award to 74%-26% in plaintiff-appellants favor.
This entitles plaintiff-appellant to the sum of P632,590.13 as its share in the adjusted price."32

Again, we do not agree. A perusal of the subcontract reveals the following stipulations:

"ARTICLE II
 SUB-CONTRACT PRICE

2.1. In consideration of the full and satisfactory performance of the works by the SUB-
CONTRACTOR the CONTRACTOR shall pay the SUB-CONTRACTOR the Lump Sum
amount of ONE MILLION SIX HUNDRED SIXTY FIVE THOUSAND (P1,665,000.00)
PESOS.

2.2. The SUB-CONTRACT PRICE above is subject to section VIII of MAIN CONTRACT. By
reason thereof, parties hereby declare and understand that the SUB-CONTRACT PRICE of
P1.665 is subject to change and verification pending the final submission of the true value as
maybe determined by evaluation and inspection by representatives of OWNER,
CONTRACTOR and SUB-CONTRACTOR."33 (Emphasis supplied)

On the other hand, the main contract between petitioner and Sucodeco provides as follows:

"VIII. SPECIAL SIDE AGREEMENT. It is hereby declared and understood that Contract
Price of P5.25M is subject to changes and verification pending the final submission of
the true value as maybe determined by evaluation and inspection by representatives of both
parties, SURIGAO COCONUT DEVELOPMENT CORPORATION and MC ENGINEERING,
INC."34

(Emphasis supplied)

The Court of Appeals was correct in holding that:

"The above-cited stipulations are very clear and need no extraneous interpretation. The lump
sum amount of P1,665,000.00 due to plaintiff-appellant in payment of the civil works
subcontracted to it is subject to change depending on the true value to be submitted and
evaluated by the parties to the contracts."35 (Emphasis supplied)

However, the Court of Appeals erred in upholding respondent Gerents claim that it was entitled to a
74% share in the price increase of the main contract.

Respondent Gerent alleges that as a customary business practice petitioner and respondent Gerent
agreed to a 74%-26% sharing in the main contract price for the civil works portion. The alleged 74%-
26% sharing can be upheld only if such specific sharing was agreed upon in the subcontract, or if
the subcontract is a joint venture. A textual examination of the terms of the subcontract shows no
provision regarding any 74%-26% sharing between petitioner and respondent Gerent. Instead, the
subcontract specifically provides for a fixed price for the civil works in the amount of P1,665,000.00,
subject to change only upon submission of the "true value" of the work undertaken by the
subcontractor.

Neither is there any stipulation in the subcontract indicating a joint venture between petitioner and
respondent Gerent. That the subcontract price corresponds to 74% of the main contract price cannot
by itself be interpreted to mean that the parties agreed to a 74%-26% sharing of any price increase
in petitioners main contract with Sucodeco. Roque, respondent Gerents president, testified that the
74%-26% arrangement was not incorporated in the subcontract and was a mere gentlemans
agreement. This can be gleaned from the testimony of Roque, to wit:
 "Q: Mr. Witness, you mentioned under page 5 of the transcript when you gave your
direct testimony that the agreement between you and the defendant was a joint venture, is
that correct?

A: Yes, sir.

Q: Where is that agreement?

A: It was a verbal agreement between us. Among contractors there is such a thing as
gentlemans agreement.

Q: Are you referring toyou mean to say that that agreement is not in writing?

A: It is not in writing but it was verbally agreed between the defendant and myself.

xxx.

"Q: Why was that 74%-26% sharing not placed in the agreement with MC Engineering
by your company?

xxx.

A: Prior to entering into our proposal we have already an agreement with Mr. Cruel that
whatever contract we will get, the civil work will be awarded to me on subcontract wherein
26% will be for MC Engineering and 74% will be for us.

Q: That is verbal agreement?

A: Verbal prior to the execution of the subcontract agreement.

Q: That was the verbal agreement prior to the execution and signing of the subcontract
agreement?

A: It was.

xxx.

"Q: This agreement, to reiterate your testimony for the alleged 74% and 26% sharing,
this has never been reduced into writing?

A: It is not, sir."36 (Emphasis supplied)

The terms of the subcontract are clear and explicit. There is no need to read into them any alleged
intention of the parties. If the true intention of the parties was a 74%-26% sharing in any price
increase in the main contract, the parties could have easily incorporated such sharing in the
subcontract, being a very important matter. They did not because that was not their agreement.

Section 9, Rule 130 of the Revised Rules of Court provides that "[w]hen the terms of an agreement
have been reduced to writing, it is to be considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence of such terms other
than the contents of the written agreement." Simply put, evidence of a prior or contemporaneous
verbal agreement is generally not admissible to vary, contradict, or defeat the operation of a valid
contract.37 While parol evidence is admissible to explain the meaning of written contracts, it cannot
serve the purpose of incorporating into the contract additional contemporaneous conditions which
are not mentioned at all in writing, unless there has been fraud or mistake.38 It is basic that parties
are bound by the terms of their contract which is the law between them.39

Respondent Gerent claims that petitioner cannot be allowed to evade its lawful obligation arising
from the subcontract, citing the well-known principle of law against unjust enrichment. Article 22 of
the Civil Code provides that "[e]very person who through an act or performance by another, or by
any other means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him." Two conditions must generally concur
before the rule on unjust enrichment can apply, namely: (a) a person is unjustly benefited, and (b)
such benefit is derived at anothers expense or damage.40

Such a situation does not exist in this case. The benefit or profit derived by petitioner neither comes
from respondent Gerent nor makes the Gerent any poorer. The profit derived by petitioner comes
from Sucodeco by virtue of the main contract to which respondent Gerent is not a party. Respondent
Gerents rights under the subcontract are not diminished in any way, and Gerent remains fully
compensated according to the terms of its own subcontract. The profit derived by petitioner is neither
unjust, nor made at the expense of respondent Gerent.

That a main contractor is able to secure a price increase from the project owner does not
automatically result in a corresponding price increase to the subcontractor in the absence of an
agreement to the contrary. In this case, there is no stipulation in the subcontract that respondent
Gerent will automatically receive 74% of whatever price increase petitioner may obtain in the civil
works portion of the main contract. Neither has the subcontract been changed to reflect a higher
subcontract price.

In a subcontract transaction, the benefit of a main contractor is not unjust even if it does less work,
and earns more profit, than the subcontractor. The subcontractor should be satisfied with its own
profit, even though less than the main contractors, because that is what it bargained for and
contracted with the main contractor. Article 22 of the Civil Code is not intended to insure that every
party to a commercial transaction receives a profit corresponding to its effort and contribution. If a
subcontractor knowingly agrees to receive a profit less than its proportionate contribution, that is its
own lookout. The fact that a subcontractor accepts less does not make it dumb for that may be the
only way to beat its competitors. The winning subcontractor cannot be allowed to later on demand a
higher price after bagging the contract and beating competitors who asked for higher prices. Even if
the subcontractor incurs a loss because of its low price, it cannot invoke Article 22 of the Civil Code
to save it from financial loss. Article 22 is not a safety net against bad or overly bold business
decisions.

Under the foregoing circumstances, we hold that Gerent is not entitled to any share in the price
increase in the main contract. Whatever price increase petitioner obtained in the main contract,
whether for the civil works portion or otherwise, was solely for the benefit of petitioner.

The First and Second Detailed Estimates

There is no true valuation of the civil works.

The main contract clearly provides that as a condition precedent for any upward or downward
adjustment in the contract price, there must first be a true valuation of the materials and labor costs
to be determined through evaluation and inspection by representatives of petitioner and
Sucodeco.41 A similar provision is found in the subcontract requiring, before any change in the
subcontract price, for a true valuation to be determined by Sucodeco, petitioner and respondent
Gerent. The records establish that respondent Gerent was responsible for making the estimates of
the actual cost of the civil works which served as basis for the original price of the main contract.

However, the Court of Appeals erred in finding that the price increase in the main contract was
based on a second detailed estimate supplied by respondent Gerent.42 The evidence adduced
reveals that the parties did not undertake any true valuation of the cost of the civil works. The price
increase could not have been based on a true valuation because no true valuation was ever made
as required by the main contract and subcontract. There is no substantial evidence to support
respondent Gerents assertion that the price increase was based on a second estimate that Gerent
allegedly supplied petitioner.

The true valuation of the works must be based on the true value or estimates of the actual materials
and labor required for the work. An examination of the alleged second detailed estimate reveals
nothing but a plain summary of computation. Not only is it undated but there is also nothing in the
said estimate which indicates that it was indeed received, evaluated and marked-up by petitioner as
claimed by respondent Gerent. Neither was it clearly established by convincing evidence that the
same was the true and final valuation of the civil works pursuant to the terms of the subcontract and
main contract. This is evident from the testimony of Roque, the president of respondent Gerent, to
wit:

"Q: So your conclusion is that based on the payment of SUCODECO to MC

Engineering, you are now entitled to your claim of alleged 74%?

A: Yes, sir.

Q: And it is not based on the actual determination of the true value of the materials and
labor spent and utilized in the project?

A: In the same manner as MC Engineering.it is not based on the true value.

Q: It is not based on the true value?

A: Yes sir."43 (Underscoring Supplied)

Clearly, the price increase did not result from a true valuation of materials and labor, which is the
only valid ground for any adjustment in the subcontract price.

The second estimate is lower than the first estimate.

A further perusal of the testimony of Narciso Roque clearly shows that the alleged second estimate,
assuming it was agreed to by petitioner and Sucodeco, was actually even lower than the first
estimate which was the basis of the original contract price for the civil works. Thus, respondent
Gerents Roque testified as follows:

"Q: Now, you made a second estimate?

A: Yes, sir, I made a second estimate on November 5."

 xxx.

"Q: How much was that?

A: P2,297,590.00, for the restoration of the civil works and land development."

xxx.

"Q: How much again was the total of the first estimate?

A: In the first estimate the total

Q: The breakdown first.

A: For building is P2,257,351.20 and the land improvement is P247,361.40.

Q: And this is the first estimate, am I correct?

A: Yes, sir.

Q: When was this made?

A: That was October 15.

Q: Then there was a second estimate?

A: The second estimate is the final adjusted cost submitted to MC Engineering by

Gerent Builders. The total for building and land improvement is
P2,297,590.00."44 (Underscoring supplied)

If indeed the price increase in the main contract were based on the lower second estimate, then the
actual price adjustment would have been downward and not upward. The fact that the main contract
price went up from the original P2,250,000.00 to P3,104,851.51 shows that the price increase was
not made on the basis of the second estimate.

There was no itemized listing of material and labor costs.

Moreover, the record is bereft of proof of an itemized listing of the costs of materials and labor to be
used upon which respondent Gerent could have based its second estimate. This negates further
respondent Gerents claim that the price increase was based on its second estimate.

The inevitable conclusion is that the price increase in the civil works portion of the main contract was
based on other factors and not on the alleged second estimate submitted by respondent Gerent.

Third Issue: Award of actual, moral and exemplary damages.

We come to the issue of whether or not petitioner is entitled to its counterclaim for actual, moral and
exemplary damages due to the wrongful issuance of the writ of attachment. The Court of Appeals
held that:
 "xxx. In the instant suit, appellee failed to establish bad faith and malice against plaintiff-
appellant when it sought to attach the formers properties. The lower court itself in its
decision did not make any express pronouncement as to the existence of malice and bad
faith in the procurement of the writ of attachment. Instead the trial court concluded that as a
result of such attachment, the defendants business operation and credit standing have been
prejudiced and damaged and the defendant is entitled to recover moral and exemplary
damages by reason of the irregular issuance of the writ of attachment. Such conclusions do
not immediately warrant the award of moral damages. It is true that the attachment was
wrongful. But in the absence of proof of bad faith or malice, plaintiff-appellants application
cannot be said to be harassing or oppressing but merely an act done to assert and protect a
legal right. (Emphasis supplied)

The grant of exemplary damages is likewise improper. Since no moral damages is due to
appellee and it appearing that no actual damages was awarded by the lower court, the grant
of exemplary damages has no leg on which to stand (Art. 2234, Civil Code).

If at all, the wrongful issuance of the writ of attachment, as ruled out by this Court, merely
resulted in actual damages to appellee. But such is not automatically awarded for it is subject
to proof. Appellees claim that it lost major contracts after a credit investigation revealed that
its accounts were garnished is a bare allegation not merely unsupported by solid evidence
but is also speculative. The alleged $35,000.00 remittance refused by the Hongkong and
Shanghai Bank does not inspire belief for failure of appellee to produce documentary proof to
buttress its claim."45

We agree with the Court of Appeals that the trial court erred in awarding moral and exemplary
damages to petitioner. The mere fact that a complaint is dismissed for lack of legal basis will not
justify an award of moral damages to the prevailing party.46 Even the dismissal of a "clearly
unfounded civil action or proceeding" will not entitle the winning party to moral damages.47 For moral
damages to be awarded, the case must fall within the instances enumerated in Article 2219, or
under Article 2220, of the Civil Code.48 Moreover, in the absence of fraud, malice, wanton
recklessness or oppressiveness, exemplary damages cannot be awarded.49

Fourth and Fifth Issues : Award of Attorneys Fees

The last matter to be determined is the reasonableness of the attorneys fees awarded to both
parties. The Court of Appeals held that:

"xxx, the award of attorneys fees must vary. Considering the wrongful attachment made
against appellees accounts, it is understandable that it incurred attorneys fees in procuring
the discharge of the attachment for which reason the amount of P5,000.00 may reasonably
be awarded. However, inasmuch as plaintiff-appellant was constrained to file this suit to
protect its legal interest, and pursuant to the terms of the sub-contract, appellee is adjudged
to pay appellant 25% of P632,590.13, the amount involved in this suit."50

The award must be modified. The Court of Appeals was partly correct in holding that the award of
attorneys fees to petitioner is justified considering that petitioner was constrained to engage the
services of counsel at an agreed attorneys fees. To secure the lifting of the writ of attachment,
petitioners counsel, Atty. Mario Aguinaldo testified that he was paid P1,250.00 on January 1985,
P10,000.00 on April 10, 1985 and another P10,000.00 on June 30, 1985 for his legal services,
totaling P21,500.00.51 Accordingly, the award of P5,000.00 is hereby increased to P21,250.00. We
deem it just and equitable that attorneys fees be awarded when a party is compelled to incur
expenses to lift a wrongfully issued writ of attachment.52
WHEREFORE, the petition is GRANTED and the assailed Decision of the Court of Appeals is SET
ASIDE. The decision of the trial court is AFFIRMED WITH MODIFICATION. The complaint against
petitioner is dismissed with prejudice. Respondents Gerent Builders, Inc. and Stronghold Surety and
Insurance Company are ordered to pay petitioner MC Engineering, Inc., jointly and severally, the
sum of P21,250.00 as attorneys fees. Costs against respondents.

SO ORDERED.

G.R. No. 154106 June 29, 2004

D.M. WENCESLAO and ASSOCIATES, INC., and/or DOMINADOR S. DAYRIT, petitioners,

vs.
READYCON TRADING AND CONSTRUCTION CORP., respondent.

QUISUMBING, J.:

This petition for review assails the decision1 of the Court of Appeals, dated January 30, 2002, as well
as its resolution2 dated June 20, 2002 in CA-GR CV No. 49101, denying petitioners motion for
reconsideration. The appellate court affirmed the decision3 of the Regional Trial Court of Pasig City,
Branch 165, in Civil Case No. 61159, ordering petitioners to pay the sum of P1,014,110.45 with
interest rate of 12% per annum (compounded annually) from August 9, 1991, the date of filing of the
complaint, until fully paid to Readycon Trading and Construction Corp., plus damages.

Petitioner D.M. Wenceslao and Associates, Inc. (WENCESLAO, for brevity) is a domestic
corporation, organized under and existing pursuant to Philippine laws, engaged in the construction
business, primarily infrastructure, foundation works, and subdivision development. Its co-petitioner,
Dominador Dayrit, is the vice-president of said company.4 Respondent Readycon Trading and
Construction Corporation (READYCON, for brevity) is likewise a corporate entity organized in
accordance with Philippine laws. Its primary business is the manufacture and sale of asphalt
materials.5

The facts of this case are not in dispute.

WENCESLAO had a contract with the Public Estates Authority (PEA) for the improvement of the
main expressway in the R-1 Toll Project along the Coastal Road in Paraaque City. To fulfill its
obligations to the PEA, WENCESLAO entered into a contract with READYCON on April 16, 1991.
READYCON agreed to sell to WENCESLAO asphalt materials valued at P1,178,308.75. The
contract bore the signature of co-petitioner Dominador Dayrit, as signatory officer for WENCESLAO
in this agreement. Under the contract, WENCESLAO was bound to pay respondent a twenty percent
(20%) downpayment, or P235,661.75, upon delivery of the materials contracted for. The balance of
the contract price, amounting to P942,647, was to be paid within fifteen (15) days thereof. It was
further stipulated by the parties that respondent was to furnish, deliver, lay, roll the asphalt, and if
necessary, make the needed corrections on a prepared base at the jobsite.6

On April 22, 1991, READYCON delivered the assorted asphalt materials worth P1,150,531.75.
Accordingly, WENCESLAO paid the downpayment of P235,661.75 to READYCON. Thereafter,
READYCON performed its obligation to lay and roll the asphalt materials on the jobsite.7

Fifteen (15) days after performance of said work, READYCON demanded that WENCESLAO pay
the balance of the contract price. WENCESLAO, however, ignored said demand.
On May 30, 1991, the counsel for READYCON wrote a demand letter to WENCESLAO asking that it
make good on the balance it owed. Again, WENCESLAO failed to heed the demand. It did not even
bother to reply to the demand letter.8

In view of this development, on July 19, 1991, READYCON filed a complaint with the Regional Trial
Court of Pasig City for collection of a sum of money and damages, with prayer for writ of preliminary
attachment against D.M. Wenceslao and/or Dominador Dayrit, docketed as Civil Case No. 61159.
READYCON demanded payment ofP1,014,110.45 from petitioners herein with P914,870.75 as the
balance of contract price, as well as payment ofP99,239.70, representing another unpaid account.9

As READYCON timely posted the required bond of P1,150,000, its application for the writ of
preliminary attachment was granted.

On September 5, 1991, the RTC Sheriff attached certain assets of WENCESLAO, particularly, the
following heavy equipments: One (1) asphalt paver, one (1) bulldozer, one (1) dozer and one (1)
grader.10

On September 16, 1991, WENCESLAO moved for the release of the attached equipments and
posted its counter-bond. The trial court granted the motion and directed the RTC Sheriff to return the
attached equipments.

On September 25, 1991, the Sheriff released the attached heavy machineries to WENCESLAO.11

In the proceedings below, WENCESLAO admitted that it owed READYCON P1,014,110.45 indeed.
However, it alleged that their contract was not merely one of sale but also of service, namely, that
respondent shall lay the asphalt in accordance with the specifications and standards imposed by and
acceptable to the government. WENCESLAO also alleged that since the contract did not indicate
this condition with respect to the period within which the balance must be paid, the contract failed to
reflect the true intention of the parties.12 It alleged READYCON agreed that the balance in the
payments would be settled only after the government had accepted READYCONs work as to its
quality in laying the asphalt. By way of counterclaim, WENCESLAO prayed for the payment of
damages caused by the filing of READYCONs complaint and the issuance of the writ of attachment
despite lack of cause.13

On December 26, 1994, the RTC rendered judgment in this wise:

WHEREFORE, judgment is hereby rendered ordering the defendant D.M. Wenceslao &
Associates, Inc. to pay plaintiff as follows:

1. The amount of P1,014,110.45 with interest at the rate of 12% per annum
(compounded annually) from August 9, 1991, date of filing of the complaint, until fully
paid.

2. The amount of P35,000.00 as and for attorneys fees and expenses of litigation.

3. Costs of suit.

The counterclaim of the defendants is dismissed for lack of merit.14

Dissatisfied with the decision, the petitioners appealed to the Court of Appeals. The appellate court,
however, affirmed in toto the decision of the lower court.15
In denying the appeal, the appellate court found that contrary to WENCESLAOs assertion, malice
and bad faith in obtaining a writ of attachment must be proved before a claim for damages on
account of wrongful attachment will prosper, citing Philippine Commercial International Bank v.
Intermediate Appellate Court, 196 SCRA 29 (1991). The CA stressed that the trial court found
neither malice nor bad faith relative to the filing of the complaint and the obtaining of the writ of
attachment. Also, according to the CA, petitioners did not adduce evidence to show that the
attachment caused damage to the cited pieces of heavy equipment.16

The appellate court also found that the trial court correctly interpreted the period for payment of the
balance. It held that the text of the stipulation that the balance shall be paid within fifteen days is
clear and unmistakable. Granting that the sales contract was not merely for supply and delivery but
also for service, the balance was already due and demandable when demand was made on May 30,
1991, which was a month after READYCON performed its obligation.17

Hence, the instant petition, wherein petitioners raise the following issues:

1. WHETHER OR NOT QUESTIONS OF FACTS ARE RAISED IN THE APPEAL BY

CERTIORARI;

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT

HOLDING RESPONDENT LIABLE FOR COMPENSATORY DAMAGES FOR THE
WRONGFUL ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT;

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT

HOLDING THE OBLIGATION [AS] NOT YET DUE AND DEMANDABLE.18

We find proper for resolution two issues: (1) Is respondent READYCON liable to petitioner
WENCESLAO for damages caused by the issuance and enforcement of the writ of preliminary
attachment? (2) Was the obligation of WENCESLAO to pay READYCON already due and
demandable as of May 30, 1991?

On the first issue, petitioners rely mainly on Lazatin v. Twano and Castro, 112 Phil. 733 (1961),
reiterated in MC Engineering v. Court of Appeals, 380 SCRA 116 (2002). In Lazatin, we held that
actual or compensatory damages may be recovered for wrongful, though not malicious,
attachment. Lazatin also held that attorneys fees may be recovered under Article 2208 of the Civil
Code.19 Petitioners contend that Lazatin applies in the instant case because the wrongful attachment
of WENCESLAOs equipment resulted in a paralysis of its operations, causing it to sustain a loss
of P100,000 per day in terms of accomplishment of work. Since the attachment lasted 19 days it
suffered a total loss of P1.9 million. Aside from that, it had to spend P50,000 on the pullout of the
equipment and another P100,000 to repair and restore them to their former working condition.20

Respondent counters that inasmuch as a preliminary attachment is an available ancillary remedy

under the rules, a penalty cannot be meted out for the enforcement of a right, such as in this case
when it sought such relief. It stresses that the writ was legally issued by the RTC, upon a finding that
READYCON sought the relief without malice or bad faith. Furthermore, WENCESLAO failed to show
concrete and credible proof of the damages it suffered. The issuance of a writ and its enforcement
entail a rigorous process where the court found that it was not attended by malice or bad faith. It
cites Mindanao Savings and Loan Association v. Court of Appeals, 172 SCRA 480 (1989), to the
effect where a counter-bond is filed, the right to question the irregularity and propriety of the writ of
attachment must be deemed waived since the ground for the issuance of the writ forms the core of
the complaint.21
We find for the respondent on this issue. However, its reliance upon Mindanao Savings and Loan
Association is misplaced.

It is to be stressed that the posting of a counter-bond is not tantamount to a waiver of the right to
damages arising from a wrongful attachment. This we have made clear in previous cases,
e.g., Calderon v. Intermediate Appellate Court,22 where we ruled that:

Whether the attachment was discharged by either of the two (2) ways indicated in the law,
i.e., by filing a counterbond or by showing that the order of attachment was improperly or
irregularly issued, the liability of the surety on the attachment bond subsists because the final
reckoning is when "the Court shall finally adjudge that the attaching creditor was not entitled"
to the issuance of the attachment writ in the first place. The attachment debtor cannot be
deemed to have waived any defect in the issuance of the attachment writ by simply availing
himself of one way of discharging the attachment writ, instead of the other. Moreover, the
filing of a counterbond is a speedier way of discharging the attachment writ maliciously
sought out by the attaching party creditor instead of the other way, which in most instances
like in the present case, would require presentation of evidence in a fullblown trial on the
merits and cannot easily be settled in a pending incident of the case.23

The point in Mindanao Savings, alluded to by respondent, pertained to the propriety of questioning
the writ of attachment by filing a motion to quash said writ, after a counter-bond had been posted by
the movant. But nowhere in Mindanao Savings did we rule that filing a counter-bond is tantamount to
a waiver of the right to seek damages on account of the impropriety or illegality of the writ.

We note that the appellate court, citing Philippine Commercial & Industrial Bank, 196 SCRA 29
(1991), stressed that bad faith or malice must first be proven as a condition sine qua non to the
award of damages. The appellate court appears to have misread our ruling, for pertinently what this
Court stated was as follows:

The silence of the decision in GR No. 55381 on whether there was bad faith or malice on the
part of the petitioner in securing the writ of attachment does not mean the absence thereof.
Only the legality of the issuance of the writ of attachment was brought in issue in that case.
Hence, this Court ruled on that issue without a pronouncement that procurement of the writ
was attended by bad faith. Proof of bad faith or malice in obtaining a writ of attachment need
be proved only in the claim for damages on account of the issuance of the writ. We affirm the
finding of the respondent appellate court that malice and bad faith attended the application
by PCIB of a writ of attachment.24

Plainly, we laid no hard and fast rule that bad faith or malice must be proved to recover any form of
damages. InPhilippine Commercial & Industrial Bank, we found bad faith and malice to be present,
thereby warranting the award of moral and exemplary damages. But we denied the award of actual
damages for want of evidence to show said damages. For the mere existence of malice and bad
faith would not per se warrant the award of actual or compensatory damages. To grant such
damages, sufficient proof thereon is required.

Petitioners cite Lazatin and MC Engineering insofar as proof of bad faith and malice as prerequisite
to the claim of actual damages is dispensed with. Otherwise stated, in the present case, proof of
malice and bad faith are unnecessary because, just like in Lazatin and MC Engineering, what is
involved here is the issue of actual and compensatory damages. Nonetheless, we find that petitioner
is not entitled to an award of actual or compensatory damages. Unlike Lazatin and MC Engineering,
wherein the respective complaints were dismissed for being unmeritorious, the writs of attachment
were found to be wrongfully issued, in the present case, both the trial and the appellate courts held
that the complaint had merit. Stated differently, the two courts found READYCON entitled to a writ of
preliminary attachment as a provisional remedy by which the property of the defendant is taken into
custody of the law as a security for the satisfaction of any judgment which the plaintiff may recover.25

Rule 57, Section 4 of the 1997 Rules of Civil Procedure states that:

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

In this case, both the RTC and the Court of Appeals found no reason to rule that READYCON was
not entitled to issuance of the writ. Neither do we find now that the writ is improper or illegal. If
WENCESLAO suffered damages as a result, it is merely because it did not heed the demand letter
of the respondent in the first place. WENCESLAO could have averted such damage if it immediately
filed a counter-bond or a deposit in order to lift the writ at once. It did not, and must bear its own loss,
if any, on that account.

On the second issue, WENCESLAO admits that it indeed owed READYCON the amount being
claimed by the latter. However, it contends that while the contract provided that the balance was
payable within fifteen (15) days, said agreement did not specify when the period begins to run.
Therefore, according to petitioner, the appellate court erred when it held the contract clear enough to
be understood on its face. WENCESLAO insists that the balance of the purchase price was payable
only "upon acceptance of the work by the government." In other words, the real intent of the parties
was that it shall be due and demandable only fifteen days after acceptance by the government of the
work. This is common practice, according to petitioner.

Respondent argues that the stipulation in the sales contract is very clear that it should be paid within
fifteen (15) days without any qualifications and conditions. When the terms of a contract are clear
and readily understandable, there is no room for construction. Even so, the contention was mooted
and rendered academic when, a few days after institution of the complaint, the government accepted
the work but WENCESLAO still failed to pay respondent.

Under Article 1582 of the Civil Code, the buyer is obliged to pay the price of the thing sold at the time
stipulated in the contract. Both the RTC and the appellate court found that the parties contract
stated that the buyer shall pay the manufacturer the amount of P1,178,308.75 in the following
manner:

20% downpayment - P235,661.75

Balance payable within fifteen (15) days P942,647.00

Following the rule on interpretation of contracts, no other evidence shall be admissible other than the
original document itself,26 except when a party puts in issue in his pleading the failure of the written
agreement to express the true intent of the parties.27 This was what the petitioners wanted done.

However, to rule on whether the written agreement failed to express the true intent of the parties
would entail having this Court reexamine the facts. The findings of the trial court as affirmed by the
appellate court on this issue, however, bind us now. For in a petition for certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, this Court may not review the findings of fact all over again.
Suffice it to say, however, that the findings by the RTC, then affirmed by the CA, that the extra
condition being insisted upon by the petitioners is not found in the sales contract between the
parties. Hence it cannot be used to qualify the reckoning of the period for payment. Besides, telling
against petitioner WENCESLAO is its failure still to pay the unpaid account, despite the fact of the
works acceptance by the government already.

With submissions of the parties carefully considered, we find no reason to warrant a reversal of the
decisions of the lower courts. But since Dominador Dayrit merely acted as representative of D.M.
Wenceslao and Associates, Inc., in signing the contract, he could not be made personally liable for
the corporations failure to comply with its obligation thereunder. Petitioner WENCESLAO is properly
held liable to pay respondent the sum of P1,014,110.45 with interest rate of 12% per annum
(compounded annually) from August 9, 1991, the date of filing of the complaint, until fully paid, plus
damages.

WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of Appeals
in CA-G.R. CV No. 49101, affirming the judgment of the Regional Trial Court of Pasig City, Branch
165, in Civil Case No. 61159, areAFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 155868 February 6, 2007

SPOUSES GREGORIO and JOSEFA YU, Petitioners,

vs.
NGO YET TE, doing business under the name and style, ESSENTIAL
MANUFACTURING, Respondent.

AUSTRIA-MARTINEZ, J.:

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

The antecedent facts are not disputed.

Spouses Gregorio and Josefa Yu (Spouses Yu) purchased from Ngo Yet Te (Te) bars of detergent
soap worthP594,240.00, and issued to the latter three postdated checks 4 as payment of the
purchase price. When Te presented the checks at maturity for encashment, said checks were
returned dishonored and stamped "ACCOUNT CLOSED".5 Te demanded6 payment from Spouses
Yu but the latter did not heed her demands. Acting through her son and attorney-in-fact, Charry Sy
(Sy), Te filed with the Regional Trial Court (RTC), Branch 75, Valenzuela, Metro Manila, a
Complaint,7 docketed as Civil Case No. 4061-V-93, for Collection of Sum of Money and Damages
with Prayer for Preliminary Attachment.

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

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

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

While the RTC did not resolve the Claim Against Surety Bond, it issued an Order17 dated May 3,
1993, discharging from attachment the Toyota Ford Fierra, jeep, and Canter delivery van on
humanitarian grounds, but maintaining custody of Lot No. 11 and the passenger bus. Spouses Yu
filed a Motion for Reconsideration18 which the RTC denied.19

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

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

xxxx

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

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

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

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

Te filed with us a Petition for Review on Certiorari24 but we denied the same in a Resolution dated
June 8, 1994 for having been filed late and for failure to show that a reversible error was committed
by the CA.25 Entry of Judgment of our June 8, 1994 Resolution was made on July 22, 1994.26 Thus,
the finding of the CA in its September 14, 1993 Decision in CA-G.R. SP No. 31230 on the
wrongfulness of the attachment/levy of the properties of Spouses Yu became conclusive and
binding.

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

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

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

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

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

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

SO ORDERED.27 (Emphasis ours)

Spouses Yu filed with the RTC a Motion for Reconsideration28 questioning the disposition of their
counterclaim. They also filed a Manifestation29 informing the RTC of our June 8, 1994 Resolution in
G.R. No. 114700.

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

xxxx

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

(3) This Court hereby reiterates in toto its Decision in this case dated July 20,
1994. 30 (Emphasis ours)
The RTC also issued an Order dated December 2, 1994,31 denying the Motion for Reconsideration of
Spouses Yu.32

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

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

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

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

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

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

Spouses Yu filed the present Petition raising the following issues:

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

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

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

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

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

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

Moreover, even if it were true that Visayan Surety was left in the proceedings a quo, such omission
is not fatal to the cause of Spouses Yu. In Malayan Insurance Company, Inc. v. Salas,50 we held that
"x x x if the surety was not given notice when the claim for damages against the principal in the
replevin bond was heard, then as a matter of procedural due process the surety is entitled to be
heard when the judgment for damages against the principal is sought to be enforced against the
suretys replevin bond."51 This remedy is applicable for the procedures governing claims for damages
on an attachment bond and on a replevin bond are the same.52

We now proceed to resolve the issues jointly.

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

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

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

To merit an award of actual damages arising from a wrongful attachment, the attachment defendant
must prove, with the best evidence obtainable, the fact of loss or injury suffered and the amount
thereof.58 Such loss or injury must be of the kind which is not only capable of proof but must actually
be proved with a reasonable degree of certainty. As to its amount, the same must be measurable
based on specific facts, and not on guesswork or speculation. 59 In particular, if the claim for actual
damages covers unrealized profits, the amount of unrealized profits must be estalished and
supported by independent evidence of the mean income of the business undertaking interrupted by
the illegal seizure. 60

Spouses Yu insist that the evidence they presented met the foregoing standards. They point to the
lists of their daily net income from the operation of said passenger bus based on used ticket
stubs61 issued to their passengers. They also cite unused ticket stubs as proof of income foregone
when the bus was wrongfully seized.62 They further cite the unrebutted testimony of Josefa Yu that,
in the day-to-day operation of their passenger bus, they use up at least three ticket stubs and earn a
minimum daily income of P1,500.00.63
In ruling that Spouses Yu failed to adduce sufficient evidence to support their counterclaim for actual
damages, the CA stated, thus:

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

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

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

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

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

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

As to moral and exemplary damages, to merit an award thereof, it must be shown that the wrongful
attachment was obtained by the attachment plaintiff with malice or bad faith, such as by appending a
false affidavit to his application.71
Spouses Yu argue that malice attended the issuance of the attachment bond as shown by the fact
that Te deliberately appended to her application for preliminary attachment an Affidavit where Sy
perjured himself by stating that they had no intention to pay their obligations even when he knew this
to be untrue given that they had always paid their obligations; and by accusing them of disposing of
their properties to defraud their creditors even when he knew this to be false, considering that the
location of said properties was known to him.72

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

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

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

COURT: Did you fund it or not?

Atty. Ferrer: The three checks involved?

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

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

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

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

A: I dont know how much was there but we transferred already to the Solid Bank.

Q: Who transferred?

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

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

As a rule, attorneys fees cannot be awarded when moral and exemplary damages are not granted,
the exception however is when a party incurred expenses to lift a wrongfully issued writ of
attachment. 74 Without a doubt, Spouses Yu waged a protracted legal battle to fight off the illegal
1awphi1.net

attachment of their properties and pursue their claims for damages. It is only just and equitable that
they be awarded reasonable attorneys fees in the amount ofP30,000.00.

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

WHEREFORE, the petition is partly GRANTED. The March 21, 2001 Decision of the Court of
Appeals isAFFIRMED with the MODIFICATION that petitioners counterclaim
is PARTLY GRANTED. Gregorio Yu and Josefa Yu are awarded P50,000.00 temperate damages
and P30,000.00 attorneys fees.
No costs.

SO ORDERED.