Allure Manufacturing, Inc. vs. Court of Appeals

The validity of an order granting a writ of preliminary mandatory injunction is judged on the facts existing at the time of its issuance, not on subsequent developments in related litigation; and a preliminary mandatory injunction may issue to restore the status quo ante where the applicant has preliminarily established a clear legal right to the property and the adverse party acquired it during the pendency of the litigation.

Allure Manufacturing, Inc. and Edgar Krohn, Jr. claimed ownership of twelve sewing machines that had been levied upon and sold at public auction to satisfy a judgment by default rendered against spouses Jaime and Ana Marie Miguel and Filmerco Commercial Co., Inc. in Civil Case No. 2807, a collection suit filed by the Bank of the Philippine Islands. Servicewide Specialists, Incorporated subsequently purchased the sewing machines from BPI in a private sale. The Court noted that Judge Jose P. Coscolluela, Jr., the Presiding Judge of Branch 146 of the Regional Trial Court of Makati who issued the challenged orders, was erroneously included as a co-petitioner; as a judge, he could be represented in the case only by the Office of the Solicitor General.

In 1983, the Bank of the Philippine Islands filed a collection suit against spouses Jaime and Ana Marie Miguel and Filmerco Commercial Co., Inc., docketed as Civil Case No. 2807 and raffled to Branch 147 of the Regional Trial Court of Makati. Because the defendants failed to file an answer, the trial court declared them in default and rendered a judgment by default, which became final and executory. A writ of execution was issued, a notice of levy was served on the defendants, and on December 3, 1984, the levied properties were sold at public auction. BPI, as the highest bidder, purchased the properties, and Sheriff Pioquinto Villapana issued the corresponding certificate of sale.

Shortly before the execution sale, on November 13, 1984, Allure Manufacturing, Inc. and Edgar Krohn, Jr. filed Civil Case No. 8993 before Branch 146 of the Regional Trial Court of Makati, presided over by Judge Jose P. Coscolluela, Jr. The action, for "recovery of personal properties, annulment of writ of attachment and damages," impleaded BPI, Alfonso Verzosa, and Sheriff Villapana as defendants. On May 21, 1985, Allure and Krohn filed a supplemental complaint containing allegations to support a writ of preliminary mandatory injunction, praying that the defendants, along with Deputy Sheriff Armando de Guzman, be commanded to return the properties sold at public auction, particularly the twelve sewing machines over which they claimed ownership. Meanwhile, BPI sold some of the levied properties to Servicewide Specialists, Inc. in a private sale executed on July 12, 1985, consisting of the sewing machines in question.

On March 11, 1986, Judge Coscolluela issued an order denying Allure and Krohn's prayer for a writ of preliminary mandatory injunction on the ground that possession of the sewing machines had already passed to third persons and that injunction was not the proper remedy to take the property out of Servicewide's possession and place it in the possession of plaintiffs whose right of ownership was still being litigated. The order nonetheless granted the prayer to allow plaintiffs to file a supplemental complaint impleading Servicewide and/or Manuel de Leon as additional defendants, temporarily restrained Servicewide from transferring or encumbering the sewing machines for twenty days, and set the hearing of the application for a writ of preliminary mandatory injunction against the additional defendants on March 18, 1986.

Servicewide filed its answer to the supplemental complaint on April 3, 1986, and its opposition to the application for a preliminary mandatory injunction on April 22, 1986. On May 27, 1986, Judge Coscolluela issued an order granting the writ of preliminary mandatory injunction prayed for by Allure and Krohn, directing Servicewide, upon the posting by plaintiffs of an P80,000.00 bond — double the amount paid by the defendant bank — to turn over possession of the twelve sewing machines to plaintiffs, to remain therein until further orders. Servicewide filed an urgent motion for reconsideration on June 6, 1986, which the trial court denied in its order of September 1, 1986.

Servicewide then filed with the Court of Appeals a petition for certiorari, docketed as C.A.-G.R. SP Case No. 09971. In the meantime, Filmerco Commercial Co., Inc. and the spouses Miguel had filed, on September 25, 1984, a motion in Civil Case No. 2807 to set aside the decision, writ of execution, notice of levy/attachment, and to restrain the holding of the auction sale; the motion was denied on November 26, 1984. A motion for reconsideration was filed on December 3, 1984, but before it could be resolved, the defendants filed with the Intermediate Appellate Court a petition for certiorari and prohibition, injunction, and temporary restraining order. The Intermediate Appellate Court dismissed the petition, and the defendants elevated the matter to the Supreme Court in G.R. No. 70661. On April 9, 1987, the Supreme Court (Second Division) ruled that there was no valid service of summons on the defendants in Civil Case No. 2807 and set aside the lower court's decision, remanding the case for proper service of summons and trial. On May 19, 1987, the respondent in C.A.-G.R. SP Case No. 09971 filed with the Court of Appeals a Manifestation and Motion informing it of the decision in G.R. No. 70661.

On May 28, 1990, the Court of Appeals rendered the challenged decision, granting the writ of certiorari and nullifying the trial court's orders of May 27 and September 1, 1986. Unable to accept the decision, Allure and Krohn filed the instant petition on September 6, 1990. The trial court had found that Allure purchased three of the sewing machines from Garmer Industrial Sewing Machines, that the rest belonged to it per an inventory submitted by its accountant, and that the remaining machines were capital contributions of Mrs. Maria Adelaida Gonzales Iguaras, a sister of Ana Marie Miguel; Allure's claim that the machines were in its possession and used in its business was unrebutted. Servicewide, for its part, purchased the machines from BPI in a private sale on July 12, 1985, during the pendency of Civil Case No. 8993.

• Equity Jurisdiction: Petitioners maintained that Judge Coscolluela, acting as a court of equity, acted judicially in granting the preliminary mandatory injunction in favor of Allure and against Servicewide, and that the equitable grounds he enunciated placed the case outside the doctrine in Manila Electric Railroad and Light Company vs. Del Rosario.
• Effect of G.R. No. 70661: Petitioners argued that the nullification of the decision in Civil Case No. 2807 in G.R. No. 70661 rendered null and void everything that proceeded therefrom, including the writ of execution, the levy, the auction sale, and the sale to Servicewide as the highest bidder, leaving Servicewide with no right over the sewing machines.

• Purchaser in Good Faith: Respondent countered that petitioners evaded the finding of the trial court, sustained by the Court of Appeals, that Servicewide was a purchaser in good faith.
• Adoption of the CA's Reasoning: Respondent sustained the challenged decision of the Court of Appeals by extensively quoting it, thereby adopting its holdings that Allure and Krohn had no clear right to the sewing machines and that the conditions for a preliminary mandatory injunction under Manila Electric Railroad and Light Company vs. Del Rosario had not been met.

• Effect of G.R. No. 70661: Whether the nullification of the decision in Civil Case No. 2807 in G.R. No. 70661 rendered null and void the writ of execution, the levy, the auction sale, and the sale of the sewing machines to Servicewide, thereby depriving the latter of any right over the machines.
• Propriety of the Writ of Preliminary Mandatory Injunction: Whether the Court of Appeals erred in nullifying the trial court's orders granting the writ of preliminary mandatory injunction in favor of Allure and Krohn.

• Effect of G.R. No. 70661: No. The validity of the trial court's orders on the issuance of the writ of preliminary injunction must be decided on the basis of the facts existing at the time they were issued, not on the basis of the subsequent vicissitudes of Civil Case No. 2807; at the time of issuance, Servicewide had in its favor a contract of sale over the sewing machines executed by BPI, which acquired them as the highest bidder in the auction sale.
• Propriety of the Writ of Preliminary Mandatory Injunction: Yes. The Court of Appeals erred in nullifying the trial court's orders; Allure had preliminarily established a clear legal right to the sewing machines and a better right to possession than Servicewide, and the writ properly restored the status quo ante.

• Effect of G.R. No. 70661: The Court rejected the petitioners' postulate that the nullification of the decision in Civil Case No. 2807 rendered void everything that proceeded therefrom. The validity of the trial court's orders on the issuance of the writ of preliminary injunction should be decided on the basis of the facts existing at the time they were issued, and not on the basis of the subsequent vicissitudes of Civil Case No. 2807. At the time the orders were issued, Servicewide had in its favor a contract of sale over the sewing machines executed by BPI, which had acquired them as the highest bidder in the auction sale. What petitioners should have done upon receipt of the decision in G.R. No. 70661 was to file an appropriate pleading for adequate relief on the basis thereof with the trial court, either in Civil Case No. 8993 or in Civil Case No. 2807.

• Propriety of the Writ of Preliminary Mandatory Injunction: The Court found no reversible error in the trial court's grant of the writ. Solely for the purpose of the application for a writ of preliminary injunction, Allure was able to preliminarily establish a clear legal right to the sewing machines and a better right to possession than Servicewide. The trial court found, against which nothing to the contrary was presented, that Allure purchased three of the sewing machines from Garmer Industrial Sewing Machines and that the rest belonged to it per an inventory submitted by its accountant; per the testimony of Jaime Miguel, the rest were capital contributions of Mrs. Maria Adelaida Gonzales Iguaras, a sister of Ana Marie Miguel. Allure's claim that the machines were in its possession and used in its business was unrebutted. Servicewide, on the other hand, purchased the property from BPI in a private sale only on July 12, 1985, during the pendency of Civil Case No. 8993, prompting Allure to file a supplemental complaint on September 23, 1985 to implead Servicewide as party defendant. Servicewide unquestionably acquired a property in litigation; the exercise of due diligence would have easily disclosed that its seller acquired the same in an auction sale conducted by the sheriff. In execution sales, the sheriff does not warrant title to the property sold by him, and it is not incumbent on him to place the purchaser in possession; the rule of caveat emptor applies to execution sales.

  The general rule that a writ of injunction is not proper where its purpose is to take property out of the possession or control of one person and place it in the hands of another where title has not been clearly established by law does not preclude relief where the status quo ante must be restored. In Buayan Cattle Co. Inc. vs. Hon. Quintillan, etc. et al., the Court ruled that injunctions are not available to take property out of the possession or control of one party and place it into that of another whose title has not clearly been established, and that the right must be clear, the injury impending or threatened, so as to be averted only by the protecting preventive process of injunction. The reason is that before the issue of ownership is determined in the light of the evidence presented, justice and equity demand that the parties be maintained in their status quo so that no advantage may be given to one to the prejudice of the other. In the instant case, if status quo is to be maintained, in the interest of justice and equity, it is the status quo before the commencement of Civil Case No. 8993, under which possession of the sewing machines was with Allure. Accordingly, the trial court committed no error in granting the writ.

  The Court also rejected the Court of Appeals' reliance on the Meralco doctrine. First, the trial court did not hold that Servicewide is a "buyer in good faith"; what it said was that it "appears to be a buyer in good faith," which is based on the legal presumption of good faith, and that did not concede to Servicewide a better right than Allure. Second, the absence of a transaction between Allure and Servicewide does not negate a willful and unlawful invasion of Allure's right by Servicewide, because invasion does not always presuppose a transactional or contractual relationship between the parties; the existence of a right in favor of one imposes upon others the duty and responsibility to respect it.

• Validity of Injunction Orders Judged on Facts at Time of Issuance — The validity of an order granting a writ of preliminary injunction is determined by the facts existing at the time it was issued, not by subsequent developments in related litigation. The Court applied this doctrine in rejecting the petitioners' argument that the nullification of the decision in Civil Case No. 2807 in G.R. No. 70661 retroactively invalidated the trial court's injunction orders.

• Status Quo Ante in Preliminary Mandatory Injunction — A writ of preliminary mandatory injunction may issue to restore the status quo ante where the applicant has preliminarily established a clear legal right to the property and the adverse party acquired it pendente lite. The Court held that the status quo to be maintained was that existing before the commencement of Civil Case No. 8993, under which possession of the sewing machines was with Allure.

• Caveat Emptor in Execution Sales — The rule of caveat emptor applies to execution sales; the sheriff does not warrant title to the property sold by him, and it is not incumbent on him to place the purchaser in possession. The Court applied this doctrine in holding that Servicewide, having purchased the sewing machines from BPI in a private sale, acquired no better right than what BPI had as the highest bidder at the execution sale.

• Requisites for Preliminary Mandatory Injunction — Under Manila Electric Railroad and Light Company vs. Del Rosario, a preliminary mandatory injunction may issue in cases of extreme urgency, where the right is very clear, where considerations of relative inconvenience bear strongly in complainant's favor, where there is a willful and unlawful invasion of plaintiff's right against his protest and remonstrance, the injury being a continuing one, and where the effect of the mandatory injunction is rather to re-establish and maintain a pre-existing continuing relation between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new relation. The Court held that the Court of Appeals' reliance on these requirements was strained and belabored, because the trial court's finding that Servicewide "appears to be a buyer in good faith" did not concede it a better right than Allure, and the absence of a transaction between the parties did not negate a willful and unlawful invasion of Allure's right.

• Property in Litigation — A purchaser of property during the pendency of litigation acquires it subject to the outcome of the case. The Court noted that Servicewide unquestionably acquired a property in litigation, having purchased the sewing machines from BPI on July 12, 1985, during the pendency of Civil Case No. 8993.

• "The validity of the orders of the trial court on the issuance of the writ of preliminary injunction should be decided on the basis of the facts existing at the time they were issued, and not on the basis of the subsequent vicissitudes of Civil Case No. 2807." — This passage states the ratio decidendi on the first issue, establishing that the subsequent nullification of the underlying judgment does not retroactively invalidate an injunction order that was valid when issued.

• "In the instant case, if status quo is to be maintained, in the interest of justice and equity, it is the status quo before the commencement of Civil Case No. 8993, under which possession of the sewing machines was with petitioner Allure." — This passage states the ratio decidendi on the principal issue, defining the status quo ante that a preliminary mandatory injunction may restore.

• "In execution sales, the sheriff does not warrant the title to the property sold by him and it is not incumbent on him to place the purchaser in possession of such property. The rule of caveat emptor applies to execution sales." — This passage articulates the caveat emptor doctrine in execution sales, which the Court applied against Servicewide as the purchaser from the highest bidder at the auction sale.

• "The absence of transaction between Allure and private respondent does not negate 'wilfull (sic) and lawful (sic) invasion of the right' of Allure by private respondent because invasion does not always presuppose a transactional or contractual relationship between the parties. The existence of a right in favor of one imposes upon others the duty and responsibility to respect it." — This passage rejects the Court of Appeals' reasoning that the absence of a contractual relationship between the parties precluded the issuance of the writ.

• Manila Electric Railroad and Light Company vs. Del Rosario, 22 Phil. 433 — The Court of Appeals relied on this case for the requisites of a preliminary mandatory injunction. The Supreme Court held that the Court of Appeals' arguments vis-a-vis these requisites were strained and belabored, and that the trial court's grant of the writ was proper.

• Buayan Cattle Co. Inc. vs. Hon. Quintillan, etc. et al., 128 SCRA 276 — Cited by the Court for the rule that injunctions are not available to take property out of the possession or control of one party and place it into that of another whose title has not clearly been established, and that the right must be clear, the injury impending or threatened, so as to be averted only by the protecting preventive process of injunction.

• Pelejo vs. Court of Appeals, 117 SCRA 665 — Cited by the Court of Appeals for the proposition that since title to the property was already in Servicewide's name, it had a better right to possess the sewing machines. The Supreme Court did not adopt this reasoning in its resolution of the principal issue.

• Pabico vs. Ong Pauco, 43 Phil. 572 — Cited by the Court for the rule of caveat emptor in execution sales, in support of the holding that the sheriff does not warrant title to the property sold by him and it is not incumbent on him to place the purchaser in possession.

• Article 1547, Civil Code — Provides that the implied warranties enumerated therein do not apply to, among others, a sheriff professing to sell, by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. The Court cited this provision in support of the rule that caveat emptor applies to execution sales.

• Section 35, Chapter 12, Title III, Book IV, Administrative Code of 1987 (Executive Order No. 292) — Provides that the Office of the Solicitor General shall represent the Government of the Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceeding, investigation, or matter requiring the service of a lawyer. The Court cited this provision in noting that Judge Coscolluela, as a judge, could be represented in this case only by the Office of the Solicitor General.

• Rule 45, Rules of Court — The petition was filed as an appeal by certiorari under Rule 45 of the Rules of Court to review and set aside the decision of the Court of Appeals.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.