Mindanao Savings & Loan Association, Inc. vs. Court of Appeals

Once a defendant obtains the discharge of a writ of preliminary attachment by filing a counterbond under Section 12, Rule 57, he may not thereafter move to quash the writ under Section 13, Rule 57 for impropriety or irregularity in its issuance, especially where the attachment ground forms the core of the complaint. The counterbond obligors remain absolutely liable for any judgment the plaintiff may recover, without reference to whether the attachment was rightfully or wrongfully issued.

Private respondents Poly R. Mercado and Juan P. Mercado sued D.S. Homes, Inc. and its directors for rescission of contract and damages, later impleading petitioner Davao Savings & Loan Association, Inc. (later Mindanao Savings & Loan Association, Inc.) and its president, Francisco Villamor. The dispute implicated the provisional remedy of preliminary attachment under Rule 57 of the Rules of Court, which permits issuance upon affidavit and bond and provides distinct modes for discharge—by counterbond under Section 12 and by motion to discharge for improper or irregular issuance under Section 13.

Private respondents Poly R. Mercado and Juan P. Mercado commenced an action in the Regional Trial Court of Davao City against D.S. Homes, Inc. and its directors, Laurentino G. Cuevas, Saturnino R. Petalcorin, Engr. Uldarico D. Dumdum, Aurora P. De Leon, Ramon D. Basa, Francisco D. Villamor, Richard F. Magallanes, Geronimo S. Palermo, Felicisima V. Ramos, and Eugenio M. De los Santos, for rescission of contract and damages with a prayer for preliminary attachment. The complaint was docketed as Civil Case No. 18263. On September 28, 1986, Judge Dinopol granted ex parte the application for a writ of preliminary attachment. Private respondents thereafter amended their complaint and, on October 10, 1986, filed a second amended complaint impleading Davao Savings & Loan Association, Inc. and its president, Francisco Villamor, as additional defendants, while dropping Eugenio M. De los Santos.

On November 5, 1986, Judge Dinopol issued ex parte an amended order of attachment against all defendants named in the second amended complaint, including Davao Savings & Loan Association, Inc. and Villamor, but excluding Eugenio C. de los Santos. D.S. Homes, Inc. et al. and Davao Savings & Loan Association (later renamed Mindanao Savings & Loan Association, Inc.) and Villamor filed separate motions to quash the writ of attachment. The trial court denied the motions.

D.S. Homes, Inc. et al. then offered a counterbond in the amount of P1,752,861.41 per certificate issued by the Land Bank of the Philippines, a banking partner of petitioner MSLA. On June 5, 1987, the lower court accepted the Land Bank Certificate of Deposit for P1,752,861.41 as counterbond and lifted the writ of preliminary attachment.

On July 29, 1987, MSLA and Villamor filed a petition for certiorari in the Court of Appeals to annul the order of attachment and the denial of their motion to quash, docketed as CA-G.R. SP No. 12467; D.S. Homes, Inc. et al. did not join them. The Court of Appeals dismissed the petition on May 5, 1988 and remanded the records of Civil Case No. 18263 to the Regional Trial Court of Davao City, Branch 13, for expeditious proceedings. Petitioners appealed to the Supreme Court.

• Excess of Jurisdiction: Petitioners alleged that the trial court acted in excess of its jurisdiction in issuing the ex parte orders of preliminary attachment and in denying their motion to quash the writ of attachment.

• Propriety of Ex Parte Attachment: Whether the trial court acted in excess of jurisdiction in issuing the ex parte orders of preliminary attachment and in denying petitioners’ motion to quash.
• Effect of Counterbond: Whether objections to the impropriety or irregularity of a preliminary attachment may still be invoked after the defendant has obtained discharge of the writ by filing a counterbond.
• Cancellation of Counterbond: Whether the defendant, after procuring dissolution of the attachment by filing a counterbond, may ask for cancellation of the counterbond on the ground that the order of attachment was improperly issued.

• Propriety of Ex Parte Attachment: No. The only requisites for issuance under Section 3, Rule 57 are the affidavit and bond of the applicant; no notice to the adverse party or hearing is required. A motion to quash may not be granted without reasonable notice to the applicant and after hearing under Sections 12 and 13, Rule 57.
• Effect of Counterbond: No. Once the defendant obtains discharge of the writ by filing a counterbond under Section 12, Rule 57, he may not file another motion under Section 13, Rule 57 to quash for impropriety or irregularity, especially where the ground for issuance forms the core of the complaint.
• Cancellation of Counterbond: No. The obligors in the counterbond are absolutely liable for any judgment the plaintiff may recover, without reference to whether the attachment was rightfully or wrongfully issued; the counterbond subsists until final absolution of the defendant.

• Propriety of Ex Parte Attachment: Section 3, Rule 57 requires only the affidavit and bond of the applicant for issuance of a writ of preliminary attachment. No notice to the adverse party or hearing of the application is required; a hearing would defeat the purpose of the provisional remedy because the time it would take could enable the defendant to abscond or dispose of property before the writ issues. While no hearing is required for issuance, a motion to quash the writ may not be granted without reasonable notice to the applicant and only after hearing under Sections 12 and 13, Rule 57. Thus, the trial court did not act in excess of jurisdiction in issuing the ex parte orders and denying the motion to quash.
• Effect of Counterbond: The Court of Appeals did not err in holding that objections to the impropriety or irregularity of the writ may no longer be invoked once a counterbond is filed, when the ground for issuance forms the core of the complaint. After the defendant obtains discharge of the writ by filing a counterbond under Section 12, Rule 57, he may not file another motion under Section 13, Rule 57 to quash the writ for impropriety or irregularity in issuing it; the writ had already been quashed by the counterbond, making another motion pointless. Moreover, when the ground for issuance is also the core of the complaint, the question of whether the plaintiff was entitled to the writ can only be determined after, not before, a full-blown trial on the merits. This accords with G.B. Inc. vs. Sanchez, 98 Phil. 886, that the merits of a main action are not triable in a motion to discharge an attachment.
• Cancellation of Counterbond: The question whether a defendant, after procuring dissolution of the attachment by filing a counterbond, may ask for cancellation of the counterbond on the ground that the order of attachment was improperly issued was answered in Uy Kimpang vs. Javier, 65 Phil. 170: the obligors in the bond are absolutely liable for the amount of any judgment that the plaintiff may recover in the action without reference to whether the attachment was rightfully or wrongfully issued. The liability of the surety on the counterbond subsists until the Court shall have finally absolved the defendant from the plaintiff’s claims; only then may the counterbond be released. The same rule applies to the plaintiff’s attachment bond. As stated in Calderon vs. Intermediate Appellate Court, 155 SCRA 531, the liability of the surety on the bond subsists because the final reckoning is when the Court shall finally adjudge that the attaching creditor was not entitled to the issuance of the attachment writ.

• Preliminary Attachment; Requisites for Issuance — Under Section 3, Rule 57, only the affidavit and bond of the applicant are required for the issuance of a writ of preliminary attachment. No notice to the adverse party or hearing of the application is required; a hearing would defeat the purpose of the provisional remedy. The Court applied this to uphold the ex parte issuance of the writ and the denial of the motion to quash.
• Discharge by Counterbond; Preclusion of Objections — Once the defendant obtains discharge of the writ by filing a counterbond under Section 12, Rule 57, he may not file another motion under Section 13, Rule 57 to quash the writ for impropriety or irregularity in issuing it, especially where the ground for issuance forms the core of the complaint. The writ had already been quashed by the counterbond, making another motion pointless.
• Core-of-Complaint Rule — When the ground for the issuance of the writ is also the core of the complaint, the question of whether the plaintiff was entitled to the writ can only be determined after, not before, a full-blown trial on the merits. The merits of a main action are not triable in a motion to discharge an attachment.
• Absolute Liability on Counterbond — The obligors in the counterbond are absolutely liable for the amount of any judgment that the plaintiff may recover in the action, without reference to whether the attachment was rightfully or wrongfully issued. The liability of the surety on the counterbond subsists until the Court shall have finally absolved the defendant from the plaintiff’s claims; only then may the counterbond be released.

• "The only requisites for the issuance of a writ of preliminary attachment under Section 3, Rule 57 of the Rules of Court are the affidavit and bond of the applicant." — This passage states the controlling requisites for issuance and supports the holding that the trial court did not exceed jurisdiction in issuing the writ ex parte.
• "No notice to the adverse party or hearing of the application is required. As a matter of fact a hearing would defeat the purpose of this provisional remedy." — This passage defines the ex parte character of preliminary attachment and explains why no prior hearing is constitutionally or procedurally required for issuance.
• "Indeed, after the defendant has obtained the discharge of the writ of attachment by filing a counterbond under Section 12, Rule 57 of the Rules of Court, he may not file another motion under Section 13, Rule 57 to quash the writ for impropriety or irregularity in issuing it." — This is the ratio decidendi on the effect of a counterbond: it precludes a subsequent motion to quash on grounds of impropriety or irregularity.
• "The obligors in the bond are absolutely liable for the amount of any judgment that the plaintiff may recover in the action without reference to the question of whether the attachment was rightfully or wrongfully issued." — This passage establishes the absolute liability of counterbond obligors and explains why the counterbond cannot be cancelled merely because the attachment is alleged to have been improperly issued.

• G.B. Inc. vs. Sanchez, 98 Phil. 886 — Cited for the rule that the merits of a main action are not triable in a motion to discharge an attachment; otherwise an applicant for dissolution could force a trial on the merits on the motion.
• Uy Kimpang vs. Javier, 65 Phil. 170 — Cited for the holding that obligors in the bond are absolutely liable for the amount of any judgment the plaintiff may recover, without reference to whether the attachment was rightfully or wrongfully issued.
• Calderon vs. Intermediate Appellate Court, 155 SCRA 531 — Cited for the rule that the liability of the surety on the attachment bond subsists because the final reckoning is when the Court shall finally adjudge that the attaching creditor was not entitled to the issuance of the attachment writ.

• Section 3, Rule 57, Rules of Court — Requires that an order of attachment be granted only when it is made to appear by affidavit and bond of the applicant that a sufficient cause of action exists, that the case is one of those mentioned in Section 1, that there is no other sufficient security, and that the amount due or value of property is as much as the sum for which the order is granted above all legal counterclaims. The Court applied it to hold that only the affidavit and bond are requisites for issuance and that no notice or hearing is required.
• Sections 12 and 13, Rule 57, Rules of Court — Section 12 governs discharge of attachment upon giving a counterbond; Section 13 governs discharge for improper or irregular issuance. The Court applied them to hold that after discharge by counterbond, a defendant may not file another motion under Section 13 to quash for impropriety or irregularity, and that a motion to quash may not be granted without reasonable notice to the applicant and after hearing.

Cruz, Gancayco, and Medialdea, JJ., concurred. Narvasa, J., filed a separate concurring and dissenting opinion.

• Narvasa, J. — Concurred in the affirmance of the Court of Appeals but wrote separately to stress principles relative to the discharge of preliminary attachments so that the majority’s statement—that after discharge by counterbond a defendant may not file another motion under Section 13 to quash for impropriety or irregularity—would not be applied beyond its intendment. Rule 57 provides two modes of discharge: by counterbond or security under Section 12, and by demonstrating improper or irregular issuance under Section 13. A party need not wait until property is seized; he may prevent seizure by giving security under Section 5. Under Calderon vs. I.A.C., 155 SCRA 531, the attachment debtor cannot be deemed to have waived any defect by simply availing himself of one mode instead of the other; filing a counterbond is a speedier way of discharging the writ. However, when the preliminary attachment is issued upon a ground that is also the applicant’s cause of action—such as money or property embezzled or fraudulently misapplied by a public officer, officer of a corporation, attorney, factor, broker, agent, clerk, fiduciary, or for willful violation of duty, or fraud in contracting the debt or incurring the obligation—the defendant is not allowed to file a motion to dissolve under Section 13 by offering to show the falsity of the factual averments in the plaintiff’s application and affidavits, because the hearing would be tantamount to a trial of the merits; the only way to dissolve the writ is by counterbond. The dissolution of the attachment upon security or a showing of irregular or improper issuance does not discharge the sureties on the plaintiff’s own attachment bond; that bond stands until the court finally adjudges that the applicant was not entitled to the attachment.