Lim, Jr. vs. Spouses Lazaro

A writ of preliminary attachment is not extinguished by the execution and court approval of a compromise agreement terminating the principal action; the attachment lien continues to subsist as a vested interest and specific security for the satisfaction of the debt until the obligation is fully paid or otherwise discharged in accordance with law.

Alfredo C. Lim, Jr. initiated legal action against Spouses Tito and Carmen Lazaro to recover P2,160,000.00 representing dishonored checks, securing a writ of preliminary attachment over three parcels of land in Bulacan. During the proceedings, the parties executed a compromise agreement whereby the spouses agreed to pay P2,351,064.80 in installments over seven years, which the trial court approved and made the basis for closing the case. The spouses subsequently moved to lift the attachment lien, claiming it was extinguished by the termination of the principal action, despite the debt remaining unpaid.

• On August 22, 2005, petitioner Alfredo C. Lim, Jr. filed a complaint for sum of money with prayer for the issuance of a writ of preliminary attachment before the RTC of Quezon City, Branch 223, docketed as Civil Case No. Q-05-56123, seeking to recover P2,160,000.00 representing amounts stated in several dishonored checks issued by respondents Spouses Tito S. Lazaro and Carmen T. Lazaro, plus interests, attorney's fees, and costs.
• The RTC granted the application for preliminary attachment on September 15, 2005, and issued the corresponding writ on October 14, 2005, after petitioner posted the required bond of P2,160,000.00.
• Pursuant to the writ, three parcels of land situated in Bulacan, covered by Transfer Certificates of Title Nos. T-64940, T-64939, and T-86369 registered in the names of Sps. Lazaro, were levied upon by the sheriff on October 27, 2005.
• In their Answer with Counterclaim, Sps. Lazaro denied liability, asserting that Lim, Jr. had no cause of action because: (a) Colim Merchandise, and not Lim, Jr., was the payee of the fifteen Metrobank checks; and (b) the PNB and Real Bank checks were drawn by Virgilio Arcinas and Elizabeth Ramos, respectively. They admitted indebtedness to Colim but alleged that previous payments had been misapplied, necessitating an accounting and reconciliation of records. They also contended that the checks were intended merely as collateral, negating fraud.
• On September 22, 2006, the parties entered into a Compromise Agreement whereby Sps. Lazaro agreed to pay Lim, Jr. the total amount of P2,351,064.80 on an installment basis, following a schedule of payments covering the period from September 2006 until October 2013.
• The Compromise Agreement contained specific terms, including: (a) a provision that monthly installments shall be increased should the financial condition of Sps. Lazaro improve, with payment of their mortgage obligation annotated on the titles serving as proof of such improvement; and (b) an acceleration clause stating that failure to pay any installment due or the dishonor of any postdated checks delivered in payment shall render the whole obligation immediately due and demandable.
• The RTC approved the Compromise Agreement in its Decision dated October 31, 2006, and subsequently issued an Amended Decision on January 5, 2007, declaring the case closed and terminated on the basis of the settlement.
• Thereafter, Sps. Lazaro filed an Omnibus Motion seeking to lift the writ of preliminary attachment annotated on the subject TCTs, arguing that the attachment was a mere provisional remedy that should be discharged since the principal action had been terminated.
• On March 29, 2007, the RTC granted the Omnibus Motion, ruling that a writ of preliminary attachment is a provisional or ancillary remedy resorted to only pending final judgment, and that since the case had been closed and terminated by the Amended Decision, the attachment should be lifted and quashed. The RTC ordered the Registry of Deeds of Bulacan to cancel the annotation.
• Lim, Jr. filed a Motion for Reconsideration, which the RTC denied on July 26, 2007, prompting him to file a Petition for Certiorari before the Court of Appeals.
• On July 10, 2008, the Court of Appeals rendered a Decision affirming the RTC's March 29, 2007 Order, finding no grave abuse of discretion. The CA observed that a writ of preliminary attachment may only be issued at the commencement of the action or at any time before entry of judgment, and thus, since the principal cause of action had been declared closed and terminated, the provisional remedy would have no leg to stand on, necessitating its discharge.
• The CA denied Lim, Jr.'s Motion for Reconsideration in its Resolution dated December 18, 2008.

• The writ of preliminary attachment should not have been lifted because the obligation under the compromise agreement remained unpaid, and the debt continues to subsist.
• Citing established jurisprudence, particularly Chemphil Export & Import Corporation v. CA, an attachment lien is not extinguished by the execution of a compromise agreement between the parties; the lien continues until the debt is paid, or the sale is had under execution, or until the judgment is satisfied.
• The RTC gravely abused its discretion in ruling that the attachment was extinguished by the approval of the compromise agreement and termination of the case, as this would create a back door for debtors to escape creditors by entering into agreements they never intend to honor.
• The attachment lien constitutes a vested interest and specific security for the satisfaction of the debt, and lifting it would effectively abdicate petitioner's rights over respondents' properties without justifiable ground.

• A writ of preliminary attachment is a mere provisional or ancillary remedy that is resorted to only to protect and preserve rights pending final judgment; it dies a natural death upon the dismissal or termination of the principal action.
• Since the compromise agreement resulted in the termination of the case, as evidenced by the RTC's Amended Decision declaring the case closed, the provisional remedy of attachment automatically ceased to exist and should be discharged.
• Preliminary attachment may only be issued at the commencement of the action or at any time before entry of judgment; once the case is terminated by compromise, the attachment loses its legal basis and must be lifted to clear the titles of the encumbrance.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the writ of preliminary attachment was properly lifted by the RTC and affirmed by the CA after the parties entered into a compromise agreement that terminated the principal action, despite the obligation remaining unpaid.

• Procedural: N/A
• Substantive:
  • The petition is meritorious. Preliminary attachment under Rule 57 of the Rules of Court is an ancillary remedy applied for not for its own sake but to enable the attaching party to realize upon the relief sought in the principal action; it is a measure auxiliary or incidental to the main action, available during its pendency to preserve and protect certain rights and interests pending final judgment.
  • While Rule 57 is silent on the duration of an attachment lien after rendition of final judgment, settled jurisprudence dictates that the lien continues until the debt is paid, or the sale is had under execution issued on the judgment, or until the judgment is satisfied, or the attachment is discharged or vacated in the manner provided by law.
  • A writ of attachment is not extinguished by the execution of a compromise agreement between the parties. The parties to a compromise agreement should not be deprived of the protection provided by an attachment lien, especially in an instance where one party reneges on obligations under the agreement.
  • To hold otherwise would create a back door by which a debtor can easily escape creditors, leading to an anomalous situation where a debtor, in order to buy time to dispose of properties, would enter into a compromise agreement with no intention of honoring it, rendering the provisional remedy of attachment a declawed and toothless tiger.
  • The attachment lien is in the nature of a vested interest which affords specific security for the satisfaction of the debt put in suit; it is a fixed and positive security, a specific lien standing upon as high equitable grounds as a mortgage.
  • Since the obligation under the compromise agreement (P2,351,064.80) had yet to be fully complied with and remained unpaid at the time of the motion to lift, the attachment of respondents' properties should have continued to subsist.
  • The Court reversed the July 10, 2008 Decision and December 18, 2008 Resolution of the Court of Appeals, nullified the March 29, 2007 Order of the RTC, and directed the trial court to restore the attachment lien over TCT Nos. T-64940, T-64939, and T-86369 in favor of petitioner.

• Preliminary Attachment as Ancillary Remedy — Under Rule 57 of the Rules of Court, preliminary attachment is a provisional remedy applied for not for its own sake but to enable the attaching party to realize upon the relief sought and expected to be granted in the main or principal action; it is auxiliary or incidental to the main action and available during its pendency to preserve rights pending final judgment.
• Duration of Attachment Lien — An attachment lien continues until the debt is paid, or the sale is had under execution issued on the judgment, or until the judgment is satisfied, or the attachment is discharged or vacated in the manner provided by law; it is not automatically extinguished by the termination of the principal action through a compromise agreement.
• Nature of Attachment Lien — The lien or security obtained by an attachment even before judgment is a vested interest, a fixed and positive security, and a specific lien affording specific security for the satisfaction of the debt put in suit; it stands upon as high equitable grounds as a mortgage and constitutes a cloud on the legal title.

• "The parties to the compromise agreement should not be deprived of the protection provided by an attachment lien especially in an instance where one reneges on his obligations under the agreement..."
• "If we were to rule otherwise, we would in effect create a back door by which a debtor can easily escape his creditors. Consequently, we would be faced with an anomalous situation where a debtor, in order to buy time to dispose of his properties, would enter into a compromise agreement he has no intention of honoring in the first place. The purpose of the provisional remedy of attachment would thus be lost. It would become, in analogy, a declawed and toothless tiger."
• "The lien or security obtained by an attachment even before judgment, is in the nature of a vested interest which affords specific security for the satisfaction of the debt put in suit."

• Chemphil Export & Import Corporation v. Court of Appeals (G.R. Nos. 112438-39 and 113394, December 12, 1995, 251 SCRA 257) — Controlling precedent establishing that a writ of attachment is not extinguished by the execution of a compromise agreement between the parties; cited for the principle that attachment liens continue until debt satisfaction and should not be discharged to prevent debtors from using compromise agreements as a means to escape creditors.
• Republic v. Estate of Alfonso Lim, Sr. (G.R. No. 164800, July 22, 2009, 593 SCRA 404) — Cited for the definition of preliminary attachment as an ancillary remedy resorted to by a litigant to preserve and protect certain rights and interests pending final judgment.
• Philippine Commercial International Bank v. Alejandro (G.R. No. 175587, September 21, 2007, 533 SCRA 738) — Cited for the enumeration of the dual purposes of preliminary attachment: (1) to seize property of the debtor in advance of final judgment for satisfaction thereof, and (2) to acquire jurisdiction over the action by actual or constructive seizure where personal or substituted service cannot be effected.
• BF Homes, Incorporated v. Court of Appeals (G.R. Nos. 76879 and 77143, October 3, 1990, 190 SCRA 262) — Cited for the principle that an attachment lien is a vested interest, a fixed and positive security, and a specific lien standing upon as high equitable grounds as a mortgage.

• Rule 57 of the Rules of Court (Preliminary Attachment) — Governs the provisional remedy of preliminary attachment as an ancillary measure available during the pendency of the principal action to secure the satisfaction of a judgment or to acquire jurisdiction.
• Section 1, Rule 57 of the Rules of Court — Enumerates the grounds upon which a writ of preliminary attachment may be issued, including the seizure of property to secure satisfaction of a judgment and the acquisition of jurisdiction through constructive seizure where personal service is impossible.