Lorenzo Shipping Corporation vs. Villarin

The provisional remedies of preliminary attachment and deposit in court are harsh and extraordinary measures that require a clear juridical tie between the applicant and the party against whom the remedy is sought. Absent such a link—as where the defendant is not privy to the contract sued upon—these remedies cannot be issued, as doing so would violate the principle of privity of contract and constitute an unjust circumvention of the rules.

Lorenzo Shipping Corporation (LSC) operated vessels and contracted with Cebu Arrastre and Stevedoring Services Corporation (CASSCOR) for cargo handling. CASSCOR, via its President Guerrero Dajao, entered into a Memorandum of Agreement (MOA) with Florencio Villarin and others (Villarin et al.) to manage CASSCOR's operations for LSC's vessels. A dispute arose when Villarin et al. alleged CASSCOR and Dajao failed to remit their shares. Villarin et al. then sued CASSCOR, Dajao, and LSC (impleaded as a nominal defendant) for specific performance, accounting, and damages.

• Filed in RTC Cebu City (Civil Case No. CEB-25283).
• RTC Branch 6 issued a writ of preliminary attachment against all defendants, including LSC (May 11, 2004 Order).
• LSC challenged the writ via certiorari to the CA (CA-G.R. SP No. 86333).
• Separately, RTC Branch 20 initially ordered LSC to deposit ₱10,297,499.59 in court (August 12, 2005 Order), but later reconsidered and set aside this order.
• Villarin et al. challenged the reconsideration via certiorari to the CA (CA-G.R. CEB SP No. 01855).
• The CA upheld the attachment writ against LSC and reinstated the deposit order.
• LSC appealed both CA decisions to the SC, which consolidated the petitions (G.R. Nos. 175727 & 178713).

• LSC had a Cargo Handling Contract with CASSCOR.
• CASSCOR's President, Dajao, entered into a MOA with Villarin et al. for the latter to manage CASSCOR's arrastre/stevedoring operations for LSC's vessels.
• Villarin et al. sued CASSCOR and Dajao for failing to remit shares under the MOA, later impleading LSC as a nominal defendant.
• The RTC issued a writ of preliminary attachment against all defendants, including LSC, based on alleged fraud.
• The RTC also issued an order requiring LSC to deposit the amount it allegedly owed CASSCOR (₱10.3M) in court, later setting it aside but then being reversed by the CA.

• LSC was merely a nominal defendant with no direct contract with Villarin et al.; thus, it could not be subjected to attachment or deposit.
• The writ of attachment lacked specific grounds against LSC and was based on a general prayer.
• The deposit order was a prejudgment of the case, a disguised third attachment, and not sanctioned by the Rules of Court as a provisional remedy.
• No juridical tie existed between LSC and Villarin et al. to justify the deposit order.
• The Valeros letter was not a judicial admission of liability to Villarin et al.

• LSC was a beneficiary of the services under the MOA and thus guilty of fraud in the performance of its obligation, justifying attachment.
• A constructive trust existed, making LSC a trustee of funds owed to Villarin et al.
• The deposit order was authorized under Rule 135, Section 6 as an auxiliary writ to carry the court's jurisdiction into effect.
• The ₱300,000 counterbond was insufficient to secure their claim.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether a writ of preliminary attachment may issue against a defendant (LSC) who is not a party to the contract sued upon.
  2. Whether a court may order a defendant (LSC) to deposit money in court as a provisional remedy when there is no direct juridical tie between said defendant and the plaintiff.

• Procedural: N/A
• Substantive:
  1. No. A writ of preliminary attachment under Rule 57, Section 1(d) requires that the party against whom it is sought has been guilty of fraud in contracting the debt or obligation upon which the action is brought. Since LSC was not a party to the MOA (the contract sued upon), it could not be guilty of fraud in contracting that obligation. The SC also found no fiduciary relation under Section 1(b).
  2. No. While a deposit order is an extraordinary provisional remedy under Rule 135, Sections 5(g) and 6, it cannot be issued absent a juridical tie between the depositor-party and the beneficiary. Here, LSC had no contract with Villarin et al., and its liability to CASSCOR was disputed. Allowing the deposit would circumvent the rules on attachment and violate privity of contract.

• Strict Construction of Rules on Preliminary Attachment — The remedy is harsh and rigorous; rules governing it must be strictly construed against the applicant. If requisites are not all present, the court must refrain from issuing it.
• Privity of Contract — Contracts take effect only between the parties, their assigns, and heirs (Civil Code Art. 1311). A third party cannot be bound by or directly benefited (or prejudiced) by a contract to which it is not privy, absent specific legal exceptions.
• Constructive Trust Distinguished — A constructive trust arises by operation of law to prevent unjust enrichment; it does not involve a fiduciary relation or an acceptance of trust. It cannot be the basis for attachment under Rule 57, Section 1(b).
• Provisional Deposit as Extraordinary Remedy — Deposit orders are not among the provisional remedies in Rules 57-61 but are allowed under Rule 135's inherent powers. They are proper only in specific circumstances: (1) where the depositor cannot contest demandability (e.g., interpleader), or (2) where the depositor regularly receives money from a non-party during the case. A juridical tie between the parties is a common prerequisite.

• "The provisional remedy of preliminary attachment is harsh and rigorous for it exposes the debtor to humiliation and annoyance. The rules governing its issuance are, therefore, strictly construed against the applicant..."
• "A contract can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof."
• "[A] deposit order would only amount to a circumvention of the rules on preliminary attachment and an unjust imposition on the alleged beneficiary who is not a party to the contract sought to be enforced."

• Ng Wee v. Tankiansee — Defined fraud under Rule 57, Sec. 1(d) as a preconceived plan not to pay at the time of contracting the obligation.
• Sta. Ines Melale Forest Products Corp. v. Macaraig — Distinguished; there, a juridical tie existed from a wrongful act (cutting of logs), broadening "creditor" under Rule 57. Here, no such wrongful act by LSC existed.
• Philippine National Bank v. CA — Clarified that in a constructive trust, there is no fiduciary relation or acceptance of trust.
• Eternal Gardens Memorial Parks Corp. v. IAC & Reyes v. Lim — Examples of proper deposit orders where the depositor's interest is resigned or the nature of the relief precludes contesting demandability.
• Province of Bataan v. Villafuerte, Go v. Go, Bustamante v. CA — Examples of proper deposit orders where the depositor regularly receives payments from a non-party (e.g., rentals) during the case.

• Rule 57, Section 1(b) & (d), Rules of Court — Grounds for preliminary attachment (fraud in contracting obligation; embezzlement/fraud by one in fiduciary capacity).
• Rule 135, Sections 5(g) & 6, Rules of Court — Inherent powers of courts to control processes and issue auxiliary writs to carry jurisdiction into effect.
• Article 1311, New Civil Code — Principle of relativity/ privity of contracts.