Dumaran vs. Llamedo

Non-payment of a debt or non-performance of an obligation does not automatically constitute fraud warranting the issuance of a writ of preliminary attachment under Section 1(d), Rule 57 of the Rules of Court, and a counter-bond is not required to discharge a writ already found to have been improperly or irregularly issued, the proper remedy in such case being a motion to discharge under Section 13 of the same Rule.

Ignacio S. Dumaran was an authorized dealer of Pilipinas Shell Philippines operating two gasoline stations in General Santos City — Linmax Shell Station and Lagao Traveller Shell Station. In September 2009, Sharon Magallanes, a former employee of Linmax Shell Station, introduced Teresa Llamedo and Ginalyn Cubeta to Dumaran, and the three respondents proposed that Dumaran supply them diesel and gasoline fuel on a cash-payment basis. The dispute arose from the respondents' subsequent shift from cash payments to post-dated personal checks issued by Llamedo, which were ultimately dishonored, prompting Dumaran to seek a writ of preliminary attachment on the ground of fraud.

Ignacio S. Dumaran was an authorized dealer of Pilipinas Shell Philippines, operating two gasoline stations in General Santos City: Linmax Shell Station and Lagao Traveller Shell Station. In September 2009, Sharon Magallanes, a former employee of Linmax Shell Station, introduced Teresa Llamedo and Ginalyn Cubeta to Dumaran. The three proposed that Dumaran supply them diesel and gasoline fuel, and all parties agreed that payment would be made in cash. Although Llamedo, Magallanes, and Cubeta initially paid in cash, they subsequently paid for their fuel purchases using Llamedo's personal checks.

On November 23, 2009, Dumaran filed a Complaint for Sum of Money, Damages, and Attorney's Fees with a Prayer for the Ex-Parte Issuance of a Writ of Preliminary Attachment against Llamedo, Magallanes, and Cubeta. He alleged that the respondents opened a joint account in Peninsula Rural Bank and, with post-dated checks drawn on that account, purchased diesel and gasoline fuel from him on credit, incurring an outstanding obligation of ₱7,416,918.55 in October and November 2009 alone. The post-dated checks issued by the respondents to pay the obligation were dishonored for insufficient funds or a closed account, and despite demands, they failed to pay the total outstanding obligation. In his Affidavit in Support of the Prayer for Writ of Attachment, Dumaran further alleged that the respondents could not be located or contacted and were about to dispose of their properties with intent to defraud him, owing to their monetary obligations to other creditors.

On December 7, 2009, the RTC issued a Writ of Attachment and Notice of Levy on Attachment. The respondents filed a Very Urgent Motion to Quash the Writ of Attachment and Notice of Levy on Attachment, contending that the writ was illegal, improper, and unjustly issued in violation of their right to due process, had no basis in fact and law, and violated Rule 39, Section 3 of the Rules of Court. The RTC denied the motion on February 23, 2010, and subsequently denied the respondents' Motion for Reconsideration on January 20, 2011, finding no new or substantial grounds to modify or reverse its earlier order.

Aggrieved, the respondents filed a Petition for Certiorari before the Court of Appeals. The CA initially dismissed the petition on technical grounds on August 3, 2011, but reinstated it on March 6, 2012 upon granting the respondents' Motion for Reconsideration with Prayer for Leave to Admit Amended Petition. On August 13, 2014, the CA granted the petition and set aside the RTC's orders, holding that Dumaran's allegations did not meet the requirements of the law regarding fraud — specifically, that Dumaran was not shown to have been defrauded into accepting the respondents' offer, and that the respondents did not intend from the beginning to avoid payment, given that they initially paid in cash and by personal check. The CA denied Dumaran's Motion for Reconsideration on February 11, 2015, reiterating that fraud under Section 1(d), Rule 57 must relate to the execution of the agreement and must have been the reason that induced the other party's consent.

• Sufficiency of Fraud Allegations: Dumaran argued that the CA erred in holding that the allegations of fraud in the complaint and affidavit did not meet the legal requirements to sustain the issuance of a writ of attachment. He emphasized that there was sufficient evidence showing that Llamedo, Magallanes, and Cubeta committed fraud in the performance of their obligation — not particularly in contracting the debt — when they undertook to withdraw fuels in other stations without his knowledge in violation of their agreement and issued worthless checks in payment therefor.
• Necessity of Counter-Bond: Dumaran alleged that the CA was incorrect in discharging the writ of preliminary attachment without requiring a counter-bond, citing FCY Construction vs. Court of Appeals for the proposition that when preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action (such as fraud in contracting the obligation), the only way the writ can be dissolved is by a counter-bond, because a hearing on a motion to dissolve would be tantamount to a trial on the merits.

• Inapplicability of FCY Construction: Respondents averred that the FCY Construction case was not applicable because the parties in that case had not yet proven the falsity of the factual averments in the applicant's application and supporting affidavits, such that a regular full-blown trial was still necessary before the writ could be discharged. Absent such a trial, the only way to dissolve the writ would be by counter-bond or cash deposit under Section 12.
• Writ Already Found Irregular: Respondents contended that the CA had already found and ruled that the writ of preliminary attachment was improperly issued — that Dumaran failed to prove that fraud existed — rendering the writ a "too harsh" provisional remedy that must be denied. Because the irregularity of the writ had already been adjudicated, a motion to discharge under Section 13 was the proper remedy, and a counter-bond under Section 12 was unnecessary.

• Sufficiency of Fraud Allegations: Whether the CA erred in holding that the allegations of fraud in the complaint and affidavit do not meet the requirements of the law to sustain the issuance of a writ of preliminary attachment under Section 1(d), Rule 57 of the Rules of Court.
• Necessity of Counter-Bond: Whether the CA erred in not finding that a counter-bond was necessary for the discharge of the writ of preliminary attachment.

• Sufficiency of Fraud Allegations: No. The CA correctly held that Dumaran's allegations failed to establish fraud under Section 1(d), Rule 57, as non-payment of a debt does not automatically equate to a fraudulent act, and the pleadings lacked the requisite specificity of wrongful acts or willful omissions demonstrating intent to deceive.
• Necessity of Counter-Bond: No. A counter-bond is not necessary for the discharge of a writ of preliminary attachment that has already been found to be improperly or irregularly issued; the proper remedy in such case is a motion to discharge under Section 13 of Rule 57, not the posting of a counter-bond under Section 12.

• Sufficiency of Fraud Allegations: Section 1(d), Rule 57 of the Rules of Court allows attachment in an action against a party guilty of fraud in contracting the debt or incurring the obligation, or in the performance thereof. Drawing on Republic vs. Mega Pacific eSolutions, Inc., the Court explained that fraud comprises anything calculated to deceive, including all acts, omissions, and concealments involving a breach of legal or equitable duty, trust, or confidence resulting in damage to another. While fraud cannot be presumed, it need not be proved by direct evidence and may be inferred from attendant circumstances. Applying this standard, the Court agreed with the CA that Dumaran's complaint and affidavit failed to show that he was defrauded into accepting the respondents' offer or that the respondents intended from the beginning not to pay, particularly since they initially paid in cash and by personal check. The pleadings lacked particulars of time, persons, and places to support the assertion that the respondents were disposing of their properties to defraud Dumaran. The Court distinguished this case from Metro, Inc. vs. Lara's Gifts and Decors, Inc., where the factual circumstances — including an initial showing of good faith followed by an abrupt abandonment of contractual obligations to deal directly with the other party's foreign buyers — clearly evidenced fraud. The case at bar was instead akin to PCL Industries Manufacturing Corporation vs. Court of Appeals, where a party's refusal to pay after delivery of allegedly defective goods was held not to constitute fraud warranting attachment. Non-payment or non-performance, standing alone, does not establish the state of mind required for fraud.

• Necessity of Counter-Bond: Rule 57 provides two remedies for discharging an attached property: Section 12 allows discharge upon giving a counter-bond or making a cash deposit, while Section 13 permits discharge upon a motion showing that the writ was improperly or irregularly issued or enforced, or that the bond is insufficient. The limitation enunciated in FCY Construction vs. Court of Appeals — that when the ground for attachment is itself the applicant's cause of action (e.g., fraud), the only way to dissolve the writ is by counter-bond, because a hearing on the motion would be tantamount to a trial on the merits — does not apply when a regular trial on the merits of the main action has already been conducted. Here, the CA had already found, after reading and hearing the allegations of both parties, that Dumaran's allegations did not meet the requirements of the law regarding fraud and that the writ was irregularly issued. Because the irregularity of the writ had been judicially determined, a motion to discharge under Section 13 was the proper remedy, and a counter-bond under Section 12 was not required.

• Fraud as Ground for Preliminary Attachment (Section 1(d), Rule 57) — Fraud under Section 1(d), Rule 57 must relate to the execution of the agreement or the performance of the obligation and must have been the reason that induced the other party to give consent that would not otherwise have been given. Fraud comprises anything calculated to deceive, including all acts, omissions, and concealments involving a breach of legal or equitable duty, trust, or confidence. While fraud cannot be presumed, it need not be proved by direct evidence and may be inferred from attendant circumstances. The mere fact of non-payment of a debt or non-performance of an obligation, despite demands, is not sufficient to warrant the issuance of a writ of preliminary attachment. The applicant must allege and demonstrate with sufficient specificity — including particulars of time, persons, and places — the wrongful acts or willful omissions that constitute the fraudulent intent.

• Remedies to Discharge a Writ of Preliminary Attachment (Sections 12 and 13, Rule 57) — There are two remedies available: (1) under Section 12, the attached party may make a cash deposit or file a counter-bond in an amount equal to that fixed by the court, which takes the place of the attached property; and (2) under Section 13, the attached party may file a motion to discharge the attachment on the ground that it was improperly or irregularly issued or enforced, or that the bond is insufficient. The limitation that a counter-bond is the only way to dissolve a writ issued on a ground that is also the applicant's cause of action (per FCY Construction vs. Court of Appeals) does not apply when the irregularity of the writ has already been judicially determined, as through a ruling on a petition for certiorari. In such a case, discharge under Section 13 is the proper remedy, and no counter-bond is required.

• "Non-payment of a debt or non-performance of an obligation does not automatically equate to a fraudulent act. Being a state of mind, fraud cannot be merely inferred from a bare allegation of non-payment of debt or non-performance of obligation." — This passage articulates the ratio decidendi on the first issue, establishing that fraud as a ground for preliminary attachment requires more than mere default and cannot be presumed from non-payment alone.

• "The fraud must relate to the execution of the agreement and must have been the reason which induced the other party into giving consent which he would not have otherwise given. To constitute a ground for attachment in Section 1(d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued upon." — This formulation, quoted from the CA's Resolution denying Dumaran's motion for reconsideration, defines the temporal and causal nexus required between fraud and the obligation for purposes of attachment.

• "For the second remedy to apply, a writ of attachment may be discharged without filing a cash bond or counter-bond only if the writ of preliminary attachment itself has already been proven to be improperly or irregularly issued or enforced, or the bond is insufficient." — This passage clarifies the interplay between Sections 12 and 13 of Rule 57 and explains why a counter-bond was unnecessary once the CA had already adjudged the writ irregularly issued.

• Republic vs. Mega Pacific eSolutions, Inc., 788 Phil. 160 (2016) — Cited for its comprehensive definition of "fraud" as related to Section 1(d), Rule 57, encompassing anything calculated to deceive, including acts, omissions, and concealments involving a breach of duty or trust. The Court adopted this definition as the governing standard for evaluating whether Dumaran's allegations sufficed.

• Tsuneishi Heavy Industries (Cebu), Inc. vs. MIS Maritime Corporation, 829 Phil. 90 (2018) — Cited for its comparative analysis of two contrasting cases — Metro, Inc. vs. Lara's Gifts and Decors, Inc. (where fraud was found) and PCL Industries Manufacturing Corporation vs. Court of Appeals (where no fraud was found) — used by the Court to illustrate when factual circumstances do or do not constitute fraud warranting attachment.

• Metro, Inc. vs. Lara's Gifts and Decors, Inc. — Discussed within the Tsuneishi framework as a case where the factual circumstances clearly showed fraud: petitioners initially remitted shares to respondents to gain trust, then abandoned their contractual obligation to deal directly with respondents' foreign buyers. Distinguished from the case at bar.

• PCL Industries Manufacturing Corporation vs. Court of Appeals — Discussed as a case where refusal to pay after delivery of allegedly defective materials was held not to constitute fraud. The Court found the case at bar akin to this precedent, reinforcing that mere non-payment does not warrant attachment.

• FCY Construction vs. Court of Appeals, 381 Phil. 282 (2000) — Cited by Dumaran for the proposition that when the ground for attachment is also the cause of action, the writ can only be dissolved by counter-bond. The Court distinguished this case, holding the limitation inapplicable because the CA had already adjudged the writ irregularly issued.

• Sps. Tanchan vs. Allied Banking Corp., 592 Phil. 252 (2008) — Cited (via footnote) in support of the proposition that fraud, being a state of mind, cannot be merely inferred from a bare allegation of non-payment.

• Section 1(d), Rule 57, Rules of Court — Authorizes the issuance of a writ of preliminary attachment in an action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, or in the performance thereof. The Court applied this provision to test whether Dumaran's allegations established fraud, and found them insufficient.

• Section 12, Rule 57, Rules of Court — Governs the discharge of attachment upon giving a counter-bond or making a cash deposit equal to the claim. The Court held this remedy was not the proper avenue because the writ had already been adjudged irregularly issued.

• Section 13, Rule 57, Rules of Court — Governs the discharge of attachment on the ground that it was improperly or irregularly issued or enforced, or that the bond is insufficient. The Court held this to be the proper remedy, as the CA had already determined the writ was irregularly issued for lack of sufficient fraud allegations.

Gesmundo, C.J., Perlas-Bernabe, S.A.J. (Chairperson), Gaerlan, and Rosario, JJ., concurred.