Adlawan vs. Torres

A writ of preliminary attachment cannot issue based on a bare allegation that a debtor mortgaged property to another creditor; the supporting affidavit must state specific facts demonstrating an actual intent to defraud the attaching creditor.

Respondent Aboitiz & Company, Inc. filed two complaints for sum of money against petitioners Eleazar and Elena Adlawan, docketed as Civil Cases Nos. CEB-1185 and CEB-1186 before the Regional Trial Court of Cebu. The complaints alleged that petitioners were indebted to Aboitiz for loans and equipment provided in connection with irrigation projects. Aboitiz applied for and obtained writs of preliminary attachment from the trial courts, claiming that petitioners had fraudulently disposed of their property by mortgaging eleven parcels of land to the Philippine Commercial and Industrial Bank (PCIB) to secure a P1,000,000.00 loan. Petitioners challenged the validity of these writs via a petition for certiorari and mandamus before the Supreme Court.

• Nature of the Claims: Aboitiz filed two complaints alleging petitioners owed it P13,430,259.14 and P5,370,672.08, respectively, for loans and equipment in connection with irrigation projects.
• Basis for Attachment: The applications for attachment were supported by an affidavit stating that petitioners had "removed or disposed of their properties with intent to defraud" Aboitiz because they executed a real estate mortgage over eleven parcels of land in favor of PCIB to secure a P1,000,000.00 loan.
• Issuance and Challenge: The trial courts granted the writs. Petitioners challenged them, arguing inter alia that the mortgage did not constitute fraudulent disposition and that the affidavit lacked specific facts proving fraudulent intent.
• Prior Related Litigation: A previous attachment obtained by Aboitiz in an earlier case (Civil Case No. R-21761) had been lifted by the trial court. That case was voluntarily dismissed by Aboitiz. The Supreme Court in G.R. No. 63225 later ruled that properties held under that prior writ of attachment must be returned to petitioners.

• Insufficient Affidavit: Petitioners argued that the affidavit in support of the attachment was fatally defective because it merely alleged the execution of a mortgage, which is not per se a fraudulent act, and failed to state specific facts demonstrating an intent to defraud creditors.
• No Fraudulent Intent: They maintained that the mortgage was executed in good faith to secure a loan necessary for continuing business operations, a finding made by a court in the prior related case.
• Defective Procedure: Petitioners contended the respondent Judge acted without jurisdiction by issuing the writ and denying their motion for reconsideration without conducting the hearing required under Section 13, Rule 57 of the Rules of Court.
• Property in Custodia Legis: They also argued the subject properties were already in custodia legis due to the prior attachment and replevin proceedings, barring further attachment.

• Fraudulent Disposition: Respondent Aboitiz countered that the mortgage of 11 parcels of land to PCIB, while Aboitiz had a much larger unsecured exposure, constituted a fraudulent removal or disposition of property intended to prefer one creditor over another and defraud Aboitiz.
• Separate Cause of Action: Aboitiz argued that the voluntary dismissal of the first case (Civil Case No. R-21761) was without prejudice, allowing it to file the new collection suits (CEB-1185 and CEB-1186) and seek attachment anew.
• Distinct Writs: It further contended that the writ of attachment in the new cases was distinct from the writ of replevin in another case (Civil Case No. 619-L), and the Supreme Court's decision in G.R. No. 63225 did not preclude the issuance of new writs.

• Sufficiency of the Affidavit: Whether the affidavit submitted by Aboitiz was legally sufficient to support the issuance of a writ of preliminary attachment under Rule 57 of the Rules of Court.
• Grave Abuse of Discretion: Whether the respondent Judge committed grave abuse of discretion amounting to lack of jurisdiction in issuing the writs of attachment and denying petitioners' motion for reconsideration without a hearing.

• Sufficiency of the Affidavit: The affidavit was insufficient. It contained only a bare, conclusory allegation that the mortgage was made with intent to defraud, without stating any specific facts to support that conclusion. The execution of a mortgage, by itself, is not a ground for attachment as it does not involve a transfer of ownership and is not inherently fraudulent. The affidavit failed to meet the strict requirement of alleging specific facts demonstrating fraudulent intent.
• Grave Abuse of Discretion: Grave abuse of discretion was committed. Because the affidavit was legally infirm, the writs were issued without factual and legal basis. Furthermore, upon the filing of a motion for reconsideration, the judge was mandated by Section 13, Rule 57 to conduct a hearing or require counter-affidavits to determine the existence of fraud. The failure to conduct this hearing compounded the grave abuse of discretion.

• Strictissimi Juris Rule for Attachment — Attachment is a harsh, extraordinary, and summary remedy. The rules governing its issuance must be construed strictly against the applicant. A writ can only be granted on concrete and specific grounds, not on general averments that perfunctorily quote the Rules of Court.
• Requisites of an Affidavit for Attachment — The affidavit supporting an application for preliminary attachment is the foundation of the writ. It must state specific facts demonstrating that the defendant is about to fraudulently dispose of his property. A mere conclusion of law that the defendant acted with fraudulent intent, without factual basis, is insufficient and renders the writ void.

• "The affidavit submitted by respondent Aboitiz in support of its prayer for the writ of attachment does not meet the requirements of Rule 57 of the Revised Rules of Court regarding the allegations on impending fraudulent removal, concealment and disposition of defendant's property." — This underscores the core deficiency that invalidated the attachment.
• "The execution of a mortgage in favor of another creditor is not conceived by the Rules as one of the means of fraudulently disposing of one's property. By mortgaging a piece of property, a debtor merely subjects it to a lien but ownership thereof is not parted with." — This clarifies the legal distinction between creating a lien and fraudulent disposal.
• "Bare allegation that an encumbrance of a property is in fraud of the creditor does not suffice. Factual bases for such conclusion must be clearly averred." — This articulates the standard for the required specificity in the affidavit.

• Carpio v. Macadaeg, 9 SCRA 552 (1963) — Cited for the rule that to justify preliminary attachment, the removal or disposal of property must be made with intent to defraud creditors, and proof of such fraud is mandated.
• Jardine-Manila Finance, Inc. v. Court of Appeals, 171 SCRA 636 (1989) — Cited for the principle that the affidavit is the foundation of the writ; if it wholly fails to set out required facts, the proceedings are null and void.
• Insular Bank of Asia & America, Inc. v. Court of Appeals, 190 SCRA 629 (1990) — Cited for the rule that inability to pay one's creditors is not necessarily synonymous with fraudulent intent not to honor an obligation.
• Jopillo, Jr. v. Court of Appeals, 167 SCRA 247 (1988) — Cited for the procedural requirement that upon the filing of a motion to dissolve an attachment, the court must conduct a hearing to determine the existence of fraud.

• Section 1(d) and (e), Rule 57 of the Revised Rules of Court — Provides the grounds for preliminary attachment, including when the defendant has been guilty of fraud in contracting the debt or incurring the obligation, or has removed or disposed of his property, or is about to do so, with intent to defraud his creditors. The Court applied this by holding the affidavit failed to sufficiently allege fraud under these provisions.
• Section 13, Rule 57 of the Revised Rules of Court — Governs the discharge of an attachment upon motion. The Court applied this by ruling that the trial judge should have treated the motion for reconsideration as a motion to discharge and conducted a hearing to gather facts on the allegation of fraud.

• Justice Hugo E. Gutierrez, Jr. (Chairman of the First Division)
• Justice Florenz D. Regalado
• Justice Ricardo J. Francisco

N/A — The decision was unanimous.