G.R. No. L-252 March 30, 1946TRANQUILINO CALO and DOROTEO SAN
JOSE,petitioners,vs.ARSENIO C. ROLDAN, Judge of First Instance of
Laguna, REGINO RELOVA and TEODULA BARTOLOME,respondents.Zosimo D.
Tanalega for petitioners.Estanislao A. Fernandez for respondents
Relova and Bartolome.No appearance for respondent
Judge.FERIA,J.:This is a petition for writ ofcertiorariagainst the
respondent Judge Arsenio C. Roldan of the Court First Instance of
Laguna, on the ground that the latter has exceeded his jurisdiction
or acted with grave abuse of discretion in appointing a receiver of
certain lands and their fruits which, according to the complainant
filed by the other respondents, as plaintiffs, against petitioners,
as defendants, in case No. 7951, were in the actual possession of
and belong to said plaintiffs.The complaint filed by plaintiffs and
respondents against defendants and petitioners in the Court of
First Instance of Laguna reads as follows:1. That the plaintiffs
and the defendants are all of legal age, Filipino citizens, and
residents of Pila, Laguna; the plaintiffs are husband and wife..2.
That the plaintiff spouses are the owners and the possessors of the
following described parcels of land, to wit:.x x x x x x x x x3.
That parcel No. (a) described above is now an unplanted rice land
and parcel No. (b) described in the complaint is a coconut land,
both under the possession of the plaintiffs..4. That the
defendants, without any legal right whatsoever and in connivance
with each other, through the use of force, stealth, threats and
intimidation, intend or are intending to enter and work or harvest
whatever existing fruits may now be found in the lands
above-mentioned in violation of plaintiff's in this case
ineffectual..5. That unless defendants are barred, restrained,
enjoined, and prohibited from entering or harvesting the lands or
working therein through ex-parte injunction, the plaintiffs will
suffer injustice, damages and irreparable injury to their great
prejudice..6. That the plaintiffs are offering a bond in their
application for ex-parte injunction in the amount of P2,000,
subject to the approval of this Hon. Court, which bond is attached
hereto marked as Annex A and made an integral part of this
complaint..7. That on or about June 26, 1945, the defendants,
through force, destroyed and took away the madre-cacao fencer, and
barbed wires built on the northwestern portion of the land
designated as parcel No. (b) of this complaint to the damage and
prejudice of the plaintiffs in the amount of at least
P200..Wherefore, it is respectfully prayed:.(a) That the
accompanying bond in the amount of P2,000 be approved;(b) That a
writ of preliminary injunction be issuedex-parteimmediately
restraining, enjoining and prohibiting the defendants, their
agents, servants, representatives, attorneys, and, (or) other
persons acting for and in their behalf, from entering in,
interfering with and/or in any wise taking any participation in the
harvest of the lands belonging to the plaintiffs; or in any wise
working the lands above-described;(c) That judgment be rendered,
after due hearing, declaring the preliminary injunction final;.(d)
That the defendants be condemned jointly and severally to pay the
plaintiffs the sum of P200 as damages; and.(e) That plaintiffs be
given such other and further relief just and equitable with costs
of suit to the defendants.The defendants filed an opposition dated
August 8, 1945, to the issuance of the writ of preliminary
injunction prayed for in the above-quoted complaint, on the ground
that they are owners of the lands and have been in actual
possession thereof since the year 1925; and their answer to the
complaint filed on August 14, 1945, they reiterate that they are
the owners and were then in actual possession of said property, and
that the plaintiffs have never been in possession thereof.The
hearing of the petition for preliminary injunction was held on
August 9, 1945, at which evidence was introduced by both parties.
After the hearing, Judge Rilloraza, then presiding over the Court
of First Instance of Laguna, denied the petition on the ground that
the defendants were in actual possession of said lands. A motion
for reconsideration was filed by plaintiffs on August 20, 1945, but
said motion had not yet, up to the hearing of the present case,
been decided either by Judge Rilloraza, who was assigned to another
court, or by the respondent judge.The plaintiffs (respondents)
filed on September 4, 1945, a reply to defendants' answer in which,
among others, they reiterate their allegation in the complaint that
they are possessors in good faith of the properties in question.And
on December 17, plaintiffs filed an urgent petitionex-partepraying
that plaintiffs' motion for reconsideration of the order denying
their petition for preliminary injunction be granted and or for the
appointment of a receiver of the properties described in the
complaint, on the ground that (a) the plaintiffs have an interest
in the properties in question, and the fruits thereof were in
danger of being lost unless a receiver was appointed; and that (b)
the appointment of a receiver was the most convenient and feasible
means of preserving, administering and or disposing of the
properties in litigation which included their fruits. Respondents
Judge Roldan, on the same date, December 17, 1945, decided that the
court would consider the motion for reconsideration in due time,
and granted the petition for appointment of and appointed a
receiver in the case.The question to be determined in the present
special civil action ofcertiorariis, whether or not the respondent
judge acted in excess of his jurisdiction or with grave abuse of
discretion in issuing the order appointing a receiver in the case
No. 7951 of the Court of First Instance of Laguna; for it is
evident that there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of the law against the said
order, which is an incidental or interlocutory one.It is a truism
in legal procedure that what determines the nature of an action
filed in the courts are the facts alleged in the complaint as
constituting the cause of the action. The facts averred as a
defense in the defendant's answer do not and can not determine or
change the nature of the plaintiff's action. The theory adopted by
the plaintiff in his complaint is one thing, and that of the
defendant in his answer is another. The plaintiff has to establish
or prove his theory or cause of action in order to obtain the
remedy he prays for; and the defendant his theory, if necessary, in
order to defeat the claim or action of the plaintiff..According to
the complaint filed in the said case No. 7951, the plaintiff's
action is one of ordinary injunction, for the plaintiffs allege
that they are the owners of the lands therein described, and were
in actual possession thereof, and that "the defendants without any
legal right whatever and in connivance with each other, through the
use of force, stealth, threat and intimidation, intend or are
intending to enter and work or harvest whatever existing fruits may
be found in the lands above mentioned in violation of plaintiffs'
proprietary rights thereto;" and prays "that the defendants, their
agents, servants, representatives, and other persons acting for or
in their behalf, be restrained, enjoined and prohibited from
entering in, interfering with, or in any way taking any
participation in the harvest of the lands above describe belonging
to the plaintiffs."That this is the nature of plaintiffs' action
corroborated by the fact that they petitioned in the same complaint
for a preliminary prohibitory injunction, which was denied by the
court in its order dated August 17, 1945, and that the plaintiffs,
in their motion for reconsideration of said order filed on August
20 of the same year, and in their urgent petition dated December
17, moving the court to grant said motion for reconsideration,
reiterated that they were actual possessors of the land in
question.The fact that plaintiffs, in their reply dated September
4, after reiterating their allegation or claim that they are the
owners in fee simple and possessors in good faith of the properties
in question, pray that they be declared the owners in fee simple,
has not changed the nature of the action alleged in the complaint
or added a new cause of action thereto; because the allegations in
plaintiffs' reply were in answer to defendants' defenses, and the
nature of plaintiffs' cause of action, as set forth in their
complaint, was not and could not be amended or changed by the
reply, which plaintiffs had the right to present as a matter of
course. A plaintiff can not, after defendant's answer, amend his
complaint by changing the cause of action or adding a new one
without previously obtaining leave of court (section 2, Rule
17)..Respondents' contention in paragraph I of their answer that
the action filed by them against petitioners in the case No. 7951
of the Court of First Instance of Laguna is not only for
injunction, but also to quiet title over the two parcels of land
described in the complaint, is untenable for the reasons stated in
the previous paragraph. Besides, an equitable action to quiet
title, in order to prevent harrassment by continued assertion of
adverse title, or to protect the plaintiff's legal title and
possession, may be filed in courts of equity (and our courts are
also of equity), only where no other remedy at law exists or where
the legal remedy invokable would not afford adequate remedy (32
Cyc., 1306, 1307). In the present case wherein plaintiffs alleged
that they are the owners and were in actual possession of the lands
described in the complaint and their fruits, the action of
injunction filed by them is the proper and adequate remedy in law,
for a judgment in favor of plaintiffs would quiet their title to
said lands..The provisional remedies denominated attachment,
preliminary injunction, receivership, and delivery of personal
property, provided in Rules 59, 60, 61, and 62 of the Rules of
Court, respectively, are remedies to which parties litigant may
resort for the preservation or protection of their rights or
interest, and for no other purpose, during the pendency of the
principal action. If an action, by its nature, does not require
such protection or preservation, said remedies can not be applied
for and granted. To each kind of action or actions a proper
provisional remedy is provided for by law. The Rules of Court
clearly specify the case in which they may be properly granted.
.Attachment may be issued only in the case or actions specifically
stated in section 1, Rule 59, in order that the defendant may not
dispose of his property attached, and thus secure the satisfaction
of any judgment that may be recovered by plaintiff from defendant.
For that reason a property subject of litigation between the
parties, or claimed by plaintiff as his, can not be attached upon
motion of the same plaintiff..The special remedy of preliminary
prohibitory injunction lies when the plaintiff's principal action
is an ordinary action of injunction, that is, when the relief
demanded in the plaintiff's complaint consists in restraining the
commission or continuance of the act complained of, either
perpetually or for a limited period, and the other conditions
required by section 3 of Rule 60 are present. The purpose of this
provisional remedy is to preserve thestatus quoof the things
subject of the action or the relation between the parties, in order
to protect the rights of the plaintiff respecting the subject of
the action during the pendency of the suit. Because, otherwise or
if no preliminary prohibition injunction were issued, the defendant
may, before final judgment, do or continue the doing of the act
which the plaintiff asks the court to restrain, and thus make
ineffectual the final judgment rendered afterwards granting the
relief sought by the plaintiff. But, as this court has repeatedly
held, a writ of preliminary injunction should not be granted to
take the property out of the possession of one party to place it in
the hands of another whose title has not been clearly
established..A receiver may be appointed to take charge of personal
or real property which is the subject of an ordinary civil action,
when it appears that the party applying for the appointment of a
receiver has an interest in the property or fund which is the
subject of the action or litigation, and that such property or fund
is in danger of being lost, removed or materially injured unless a
receiver is appointed to guard and preserve it (section 1 [b], Rule
61); or when it appears that the appointment of a receiver is the
most convenient and feasible means of preserving, administering or
disposing of the property in litigation (section 1 [e] of said
Rule). The property or fund must, therefore be in litigation
according to the allegations of the complaint, and the object of
appointing a receiver is to secure and preserve the property or
thing in controversy pending the litigation. Of course, if it is
not in litigation and is in actual possession of the plaintiff, the
latter can not apply for and obtain the appointment of a receiver
thereof, for there would be no reason for such appointment.Delivery
of personal property as a provisional remedy consists in the
delivery, by order of the court, of a personal property by the
defendant to the plaintiff, who shall give a bond to assure the
return thereof or the payment of damages to the defendant in the
plaintiff's action to recover possession of the same property
fails, in order to protect the plaintiff's right of possession of
said property, or prevent the defendant from damaging, destroying
or disposing of the same during the pendency of the
suit.Undoubtedly, according to law, the provisional remedy proper
to plaintiffs' action of injunction is a preliminary prohibitory
injunction, if plaintiff's theory, as set forth in the complaint,
that he is the owner and in actual possession of the premises is
correct. But as the lower court found at the hearing of the said
petition for preliminary injunction that the defendants were in
possession of the lands, the lower court acted in accordance with
law in denying the petition, although their motion for
reconsideration, which was still pending at the time the petition
in the present case was heard in this court, plaintiffs insist that
they are in actual possession of the lands and, therefore, of the
fruits thereof.From the foregoing it appears evident that the
respondent judge acted in excess of his jurisdiction in appointing
a receiver in case No. 7951 of the Court of First Instance of
Laguna. Appointment of a receiver is not proper or does not lie in
an action of injunction such as the one filed by the plaintiff. The
petition for appointment of a receiver filed by the plaintiffs
(Exhibit I of the petition) is based on the ground that it is the
most convenient and feasible means of preserving, administering and
disposing of the properties in litigation; and according to
plaintiffs' theory or allegations in their complaint, neither the
lands nor the palay harvested therein, are in litigation. The
litigation or issue raised by plaintiffs in their complaint is not
the ownership or possession of the lands and their fruits. It is
whether or not defendants intend or were intending to enter or work
or harvest whatever existing fruits could then be found in the
lands described in the complaint, alleged to be the exclusive
property and in the actual possession of the plaintiffs. It is a
matter not only of law but of plain common sense that a plaintiff
will not and legally can not ask for the appointment or receiver of
property which he alleges to belong to him and to be actually in
his possession. For the owner and possessor of a property is more
interested than persons in preserving and administering it.Besides,
even if the plaintiffs had amended their complaint and alleged that
the lands and palay harvested therein are being claimed by the
defendants, and consequently the ownership and possession thereof
were in litigation, it appearing that the defendants (now
petitioners) were in possession of the lands and had planted the
crop or palay harvested therein, as alleged in paragraph 6 (a) and
(b) of the petition filed in this court and not denied by the
respondent in paragraph 2 of his answer, the respondent judge would
have acted in excess of his jurisdiction or with a grave abuse of
discretion in appointing a receiver thereof. Because relief by way
of receivership is equitable in nature, and a court of equity will
not ordinarily appoint a receiver where the rights of the parties
depend on the determination of adverse claims of legal title to
real property and one party is in possession (53 C. J., p. 26). The
present case falls within this rule..In the case ofMendoza vs.
Arellano and B. de Arellano, this court said:Appointments of
receivers of real estate in cases of this kind lie largely in the
sound discretion of the court, and where the effect of such an
appointment is to take real estate out of the possession of the
defendant before the final adjudication of the rights of the
parties, the appointment should be made only in extreme cases and
on a clear showing of necessity therefor in order to save the
plaintiff from grave and irremediable loss or damage. (34 Cyc., 51,
and cases there cited.) No such showing has been made in this case
as would justify us in interfering with the exercise by trial judge
of his discretion in denying the application for receiver. (36
Phil., 59, 63, 64.).Although the petition is silent on the matter,
as the respondents in their answer allege that the Court of First
Instance of Laguna has appointed a receiver in another case No.
7989 of said court, instituted by the respondents Relova against
Roberto Calo and his brothers and sisters, children of Sofia de Oca
and Tranquilino Calo (petitioner in this case), and submitted copy
of the complaint filed by the plaintiffs (now respondents) in case
No. 7989 (Exhibit 9 of the respondents' answer), we may properly
express and do hereby express here our opinion, in order to avoid
multiplicity of suits, that as the cause of action alleged in the
in the complaint filed by the respondents Relova in the other case
is substantially the same as the cause of action averred in the
complaint filed in the present case, the order of the Court of
First Instance of Laguna appointing a receiver in said case No.
7989 was issued in excess of its jurisdiction, and is therefore
null and void.In view of all the foregoing, we hold that the
respondent Judge Arsenio C. Roldan of the Court of First Instance
of Laguna has exceeded his jurisdiction in appointing a receiver in
the present case, and therefore the order of said respondent judge
appointing the receiver, as well as all other orders and
proceedings of the court presided over by said judge in connection
with the receivership, are null and void.As to the petitioners'
petition that respondents Relova be punished for contempt of court
for having disobeyed the injunction issued by this court against
the respondents requiring them to desist and refrain from enforcing
the order of receivership and entering the palay therein, it
appearing from the evidence in the record that the palay was
harvested by the receiver and not by said respondents, the petition
for contempt of court is denied. So ordered, with costs against the
respondents.G.R. No. 185734, July 03, 2013ALFREDO C. LIM,
JR.,Petitioner,v.SPOUSES TITO S. LAZARO AND CARMEN T.
LAZARO,Respondents.
R E S O L U T I O NPERLAS-BERNABE,J.:Assailed in this petition
for review oncertiorari1are the July 10, 2008 Decision2and December
18, 2008 Resolution3of the Court of Appeals (CA) in CA-G.R. SP No.
100270, affirming the March 29, 2007 Order4of the Regional Trial
Court of Quezon City, Branch 223 (RTC), which lifted the writ of
preliminary attachment issued in favor of petitioner Alfredo C.
Lim, Jr. (Lim, Jr.).The Facts
On August 22, 2005, Lim, Jr. filed a complaint5for sum of money
with prayer for the issuance of a writ of preliminary attachment
before the RTC, seeking to recover from respondents-spouses Tito S.
Lazaro and Carmen T. Lazaro (Sps. Lazaro) the sum of P2,160,000.00,
which represented the amounts stated in several dishonored checks
issued by the latter to the former, as well as interests, attorneys
fees, and costs. The RTC granted the writ of preliminary attachment
application6and upon the posting of the required P2,160,000.00
bond,7issued the corresponding writ on October 14, 2005.8In this
accord, three (3) parcels of land situated in Bulacan, covered by
Transfer Certificates of Title (TCT) Nos. T-64940, T-64939, and
T-86369 (subject TCTs), registered in the names of Sps. Lazaro,
were levied upon.9
In their Answer with Counterclaim,10Sps. Lazaro averred, among
others, that Lim, Jr. had no cause of action against them since:
(a) Colim Merchandise (Colim), and not Lim, Jr., was the payee of
the fifteen (15) Metrobank checks; and (b) the PNB and Real Bank
checks were not drawn by them, but by Virgilio Arcinas and
Elizabeth Ramos, respectively. While they admit their indebtedness
to Colim, Sps. Lazaro alleged that the same had already been
substantially reduced on account of previous payments which were
apparently misapplied. In this regard, they sought for an
accounting and reconciliation of records to determine the actual
amount due. They likewise argued that no fraud should be imputed
against them as the aforesaid checks issued to Colim were merely
intended as a form of collateral.11Hinged on the same grounds, Sps.
Lazaro equally opposed the issuance of a writ of preliminary
attachment.12
Nonetheless, on September 22, 2006, the parties entered into a
Compromise Agreement13whereby Sps. Lazaro agreed to pay Lim, Jr.
the amount of P2,351,064.80 on an installment basis, following a
schedule of payments covering the period from September 2006 until
October 2013, under the following terms, among others: (a) that
should the financial condition of Sps. Lazaro improve, the monthly
installments shall be increased in order to hasten the full payment
of the entire obligation;14and (b) that Sps. Lazaros failure to pay
any installment due or the dishonor of any of the postdated checks
delivered in payment thereof shall make the whole obligation
immediately due and demandable.
The aforesaid compromise agreement was approved by the RTC in
its October 31, 2006 Decision15and January 5, 2007 Amended
Decision.16
Subsequently, Sps. Lazaro filed an Omnibus Motion,17seeking to
lift the writ of preliminary attachment annotated on the subject
TCTs, which the RTC granted on March 29, 2007.18It ruled that a
writ of preliminary attachment is a mere provisional or ancillary
remedy, resorted to by a litigant to protect and preserve certain
rights and interests pending final judgment. Considering that the
case had already been considered closed and terminated by the
rendition of the January 5, 2007 Amended Decision on the basis of
the September 22, 2006 compromise agreement, the writ of
preliminary attachment should be lifted and quashed. Consequently,
it ordered the Registry of Deeds of Bulacan to cancel the writs
annotation on the subject TCTs.
Lim, Jr. filed a motion for reconsideration19which was, however,
denied on July 26, 2007,20prompting him to file a petition
forcertiorari21before the CA.The CA Ruling
On July 10, 2008, the CA rendered the assailed
decision,22finding no grave abuse of discretion on the RTCs part.
It 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. Thus, since the principal cause of action had
already been declared closed and terminated by the RTC, the
provisional or ancillary remedy of preliminary attachment would
have no leg to stand on, necessitating its discharge.23
Aggrieved, Lim, Jr. moved for reconsideration24which was
likewise denied by the CA in its December 18, 2008
Resolution.25
Hence, the instant petition.The Issue Before the Court
The sole issue in this case is whether or not the writ of
preliminary attachment was properly lifted.The Courts Ruling
The petition is meritorious.
By its nature, preliminary attachment, under Rule 57 of the
Rules of Court (Rule 57), is an ancillary 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 a measure auxiliary or incidental to the
main action. As such, it is available during its pendency which may
be resorted to by a litigant to preserve and protect certain rights
and interests during the interim, awaiting the ultimate effects of
a final judgment in the case.26 In addition, attachment is also
availed of in order to acquire jurisdiction over the action by
actual or constructive seizure of the property in those instances
where personal or substituted service of summons on the defendant
cannot be effected.27
In this relation, while the provisions of Rule 57 are silent on
the length of time within which an attachment lien shall continue
to subsist after the rendition of a final judgment, jurisprudence
dictates that the said liencontinues 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 discharged or vacated in
the same manner provided by law.28
Applying these principles, the Court finds that the discharge of
the writ of preliminary attachment against the properties of Sps.
Lazaro was improper.
Records indicate that while the parties have entered into a
compromise agreement which had already been approved by the RTC in
its January 5, 2007 Amended Decision, the obligations thereunder
have yet to be fully complied with particularly, the payment of the
total compromise amount of P2,351,064.80. Hence, given that the
foregoing debt remains unpaid, the attachment of Sps. Lazaros
properties should have continued to subsist.
InChemphil Export & Import Corporation v. CA,29the Court
pronounced that a writ of attachment is not extinguished by the
execution of a compromise agreement between the
parties,viz:cralavvonlinelawlibraryDid the compromise agreement
between Antonio Garcia and the consortium discharge the latters
attachment lien over the disputed shares?
CEIC argues that a writ of attachment is a mere auxiliary remedy
which, upon the dismissal of the case, dies a natural death. Thus,
when the consortium entered into a compromise agreement, which
resulted in the termination of their case, the disputed shares were
released from garnishment.
We disagree. To subscribe to CEICs contentions would be to
totally disregard the concept and purpose of a preliminary
attachment.
x x x x
The case at bench admits of peculiar character in the sense that
it involves a compromise agreement. Nonetheless, x x x.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, as in the
case at bench, where Antonio Garcia failed to hold up his own end
of the deal, so to speak.
x x x x
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. (Emphasis and underscoring supplied;
citations omitted)
In fine, the Court holds that the writ of preliminary attachment
subject of this case should be restored and its annotation revived
in the subject TCTs, re-vesting unto Lim, Jr. his preferential lien
over the properties covered by the same as it were before the
cancellation of the said writ. Lest it be misunderstood, 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.30Verily, the lifting of
the attachment lien would be tantamount to an abdication of Lim,
Jr.s rights over Sps. Lazaros properties which the Court, absent
any justifiable ground therefor, cannot allow.
WHEREFORE, the petition isGRANTED. The July 10, 2008 Decision
and the December 18, 2008 Resolution of the Court of Appeals in
CA-G.R. SP No. 100270 areREVERSEDandSET ASIDE, and the March 29,
2007 Order of the Regional Trial Court of Quezon City, Branch 223
isNULLIFIED. Accordingly, the trial court is directed toRESTOREthe
attachment lien over Transfer Certificates of Title Nos. T-64940,
T-64939, and T-86369, in favor of petitioner Alfredo C. Lim,
Jr.
SO ORDERED.
G.R. No. 48080, De Borja v. Platon and De Borja, 73 Phil.
659Republic of the PhilippinesSUPREME COURTManilaEN BANCAugust 31,
1942G.R. No. 48080JOSE DE BORJA,petitioner,vs.SERVILLANO PLATON and
FRANCISCO DE BORJA,respondents.Vicente J. Francisco for
petitioner.E. V. Filamor for respondents.No appearance for
respondent judgeBOCOBO,J.:Petitioner seeks the setting aside of an
order of preliminary attachment issued on November 6, 1940, and
reiterated on January 13, 1941, by the respondent Judge of the
Court of First Instance against petitioner's properties.On August
12, 1936, petitioner brought a civil action in the Court of First
Instance of Rizal against Hermogena Romero, Francisco de Borja,
Josefa Tangco and Crisanto de Borja to annul a second sale by
Francisco de Borja to Hermogena Romero, of a large estate known as
the Hacienda Jalajala, and to recover damages in the amount of
P25,000. On August 29, 1936, Francisco de Borja and his wife Josefa
Tangco filed an answer with three counterclaims, and on September
29, 1936, they presented two more counterclaims. Trial began
September 30, 1936. Under date of August 4, 1937, defendants
Francisco de Borja, Josefa Tangco and Crisanto de Borja submitted
their amended answer, consisting of a general denial, special
defenses, and five counterclaims and cross-complaints. In these
causes for counter-claim and cross-complaint, it was alleged that
plaintiff, being a son of defendants Francisco de Borja and Josefa
Tangco, had been entrusted with the administration of the extensive
interests of his parents, but had been unfaithful to his trust.
Said defendants, therefore, prayed,inter alia, that the spouses
Borja and Tangco be declared owners of the Hacienda Jalajala in
question; that plaintiff be required to render an accounting of the
products of said hacienda that he had received and to pay said
spouses at least P100,000 illegally retained by him; that plaintiff
be ordered to account for the proceed of rice and bran and to pay
at least P700,000 unlawfully retained by him; that plaintiff be
made to deliver P20,000 which he had collected from a debtor of
said spouses; that plaintiff be likewise ordered to pay another sum
of P9,034 collected by him from the same debtor; and that plaintiff
be required to turn over to defendants Francisco de Borja and
Josefa Tangco the amount of P40,000 collected by him as indemnity
of an insurance policy on property belonging to said spouses.On
July 27, 1940, Francisco de Borja and his wife filed their petition
for preliminary attachment to cover their third, fourth, and fifth,
grounds for cross-complaint, involving a total of P69,035. In said
motion, the defendants Borja and wife stated that they did not
include the first and second causes for cross-complaint because the
visible property of plaintiff that could then be attached was only
worth about P2,000. On August 21, 1940, plaintiff presented an
amended answer setting up a counterclaim against defendants Borja
and wife in the sum of P99,175.46.The order for preliminary
attachment is questioned upon several grounds, among which are: (1)
that no writ of attachment can be issued in favor of a defendant
who presents a counterclaim; (2) and the defendants' affidavit was
fatally defective.On the first point, we believe a writ of
preliminary attachment may be issued in favor of a defendant who
sets up a counterclaim. For the purpose of the protection afforded
by such attachment, it is immaterial whether the defendants Borja
and wife simply presented a counterclaim or brought a separate
civil action against Jose de Borja, plaintiff in the previous case
and petitioner herein. To lay down a subtle distinction would be to
sanction that formalism and that technicality which are
discountenanced by the modern laws of procedure for the sake of
speedy and substantial justice. In the present case we see no
reason why the order of the trial court should be disturbed, this
question being a matter within its discretion and we find no grave
abuse of that discretion.As to be the second objection of
petitioner, his counsel strenuously advances the theory that the
affidavit attached to the petition for a writ of preliminary
attachment was fatally defective because it failed to allege that
"the amount due to the plaintiff is as much as the sum for which
the order is granted above all legal counterclaims" as required in
section 426,Code of Civil Procedureand section 3, Rule 59, Rules of
Court. Petitioner contends that his counterclaim against that of
Francisco de Borja and wife being P99,175.46 whereas the latter's
counterclaim totalled only P69,035, the omission of the allegation
referred to is a serious defect. The trial court found, however,
that the counterclaim of Francisco de Borja and wife exceed those
of the petitioner Jose de Borja. It should be borne in mind that
the aggregate counterclaims of Francisco de Borja and wife amounted
to P869,000, which exceeds petitioner's counterclaim by P769,000 in
round figures. Moreover, as the trial court had before it the
evidence adduce by both sides, the petition for a writ of
preliminary attachment having been filed four years after the trial
had begun, we presume that the lower court, having in mind such
evidence, ordered the attachment accordingly.The order appealed
from is hereby affirmed, with costs against the petitioner. So
ordered.SECOND DIVISIONPROFESSIONAL VIDEO, INC.,Petitioner,- versus
-TECHNICAL EDUCATION AND SKILLS DEVELOPMENT AUTHORITY,
Respondent.G.R. No.
155504Present:QUISUMBING,J.,Chairperson,*YNARES-SANTIAGO,**CHICO-NAZARIO,***LEONARDO-DE
CASTRO, andBRION,JJ. Promulgated:June 26, 2009
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D E C I S I O N
BRION,J.:We resolve the petition filed by Professional Video,
Inc. (PROVI)[1]to annul and set aside the Decision[2]of the Court
of Appeals (CA) in CA-G.R. SP No. 67599, and its subsequent Order
denying PROVIs motion for reconsideration.[3]The assailed CA
decision nullified:a.the Order[4]dated July 16, 2001 of the
Regional Trial Court (RTC), Pasig City, in Civil Case No. 68527,
directing the attachment/garnishment of the properties of
respondent Technical Education and SkillsDevelopment
Authority(TESDA) amounting to Thirty Five Million Pesos
(P35,000,000.00); andb.the RTCsAugust 24, 2001Order[5]denying
respondent TESDAsmotion to discharge/quash writ of attachment.THE
FACTUAL BACKGROUNDPROVI is an entity engaged in the sale of high
technology equipment, information technology products and broadcast
devices, including the supply of plastic card printing and security
facilities.TESDA is an instrumentality of the government
established under Republic Act (R.A.) No. 7796 (the TESDA Act of
1994) and attached to the Department of Labor and Employment (DOLE)
to develop and establish a national system of skills
standardization, testing, and certification in the country.[6]To
fulfill this mandate, it sought to issue security-printed
certification and/or identification polyvinyl (PVC) cards to
trainees who have passed the certification process.TESDAs
Pre-Qualification Bids Award Committee (PBAC) conducted two (2)
public biddings onJune 25, 1999andJuly 22, 1999for the printing and
encoding of PVC cards. A failure of bidding resulted in both
instances since only two (2) bidders PROVI and Sirex Phils. Corp.
submitted proposals.Due to the failed bidding, the PBAC recommended
that TESDA enter into a negotiated contract with PROVI. OnDecember
29, 1999, TESDA and PROVI signed and executed their Contract
Agreement Project: PVC ID Card Issuance (the Contract Agreement)for
the provision of goods and services in the printing and encoding of
PVC cards.[7]Under this Contract Agreement, PROVI was to provide
TESDA with the system and equipment compliant with the
specifications defined in the Technical Proposal. In return, TESDA
would pay PROVI the amount of Thirty-Nine Million Four Hundred and
Seventy-Five Thousand Pesos (P39,475,000) within fifteen (15) days
after TESDAs acceptance of the contracted goods and services.On
August 24, 2000, TESDA and PROVI executed an Addendum to the
Contract Agreement Project: PVC ID Card Issuance
(Addendum),[8]whose terms bound PROVI to deliver one hundred
percent (100%) of the enumerated supplies to TESDA consisting of
five hundred thousand (500,000) pieces of security foil; five (5)
pieces of security die with TESDA seal; five hundred thousand
(500,000) pieces of pre-printed and customized identification
cards; one hundred thousand (100,000) pieces of scannable answer
sheets; and five hundred thousand (500,000) customized TESDA
holographic laminate. In addition, PROVI would install and maintain
the following equipment: one (1) unit of Micropoise, two (2) units
of card printer, three (3) units of flatbed scanner, one (1) unit
of OMR scanner, one (1) unit of Server, and seven (7) units of
personal computer.TESDA in turn undertook to pay PROVI thirty
percent (30%) of the total cost of the supplies within thirty (30)
days after receipt and acceptance of the contracted supplies, with
the balance payable within thirty (30) days after the initial
payment.According to PROVI, it delivered the following items to
TESDA on the dates indicated:DateParticularsAmount26 April
200048,500 pre-printed cardsP2,764,500.0007 June 2000330,000
pre-printed cards18,810,000.0007 August 2000121,500 pre-printed
cards6,925,500.0026 April 2000100,000 scannable answer
sheets600,000.0006 June 20005 Micro-Poise customized
die375,000.0013 June 200035 boxes @ 15,000
imp/box10,000,000.00Custom hologram FoilTotalP39,475,000.00PROVI
further alleged that out of TESDAs liability ofP39,475,000.00,
TESDA paid PROVI onlyP3,739,500.00, leaving an outstanding balance
ofP35,735,500.00, as evidenced by PROVIs Statement of
Account.[9]Despite the two demand letters dated March 8 andApril
27, 2001that PROVI sent TESDA,[10]the outstanding balance remained
unpaid.OnJuly 11, 2001, PROVI filed with the RTC a complaint for
sum of money with damages against TESDA. PROVI additionally prayed
for the issuance of a writ of preliminary attachment/garnishment
against TESDA. The case was docketed as Civil Case No. 68527.In an
Order datedJuly 16, 2001, the RTC granted PROVIs prayer and issued
a writ of preliminary attachment against the properties of TESDA
not exempt from execution in the amount ofP35,000,000.00.[11]TESDA
responded onJuly 24, 2001by filing a Motion to Discharge/Quash the
Writ of Attachment, arguing mainly that public funds cannot be the
subject of garnishment.[12]The RTC denied TESDAs motion, and
subsequently ordered the manager of the Land Bank of
thePhilippinesto produce TESDAs bank statement for the garnishment
of the covered amount.[13]Faced with these rulings, TESDA filed a
Petition forCertiorariwith the CA to question the RTC orders,
imputing grave abuse of discretion amounting to lack or excess of
jurisdiction on the trial court for issuing a writ of preliminary
attachment against TESDAs public funds.[14]The CA set aside the
RTCs orders after finding that: (a) TESDAs funds are public in
nature and, therefore, exempt from garnishment; and(b) TESDAs
purchase of the PVC cards was a necessary incident of its
governmental function; consequently, it ruled that there was no
legal basis for the issuance of a writ of preliminary
attachment/garnishment.[15]The CA subsequently denied PROVIs motion
for reconsideration;[16]hence, the present petition.THE PETITIONThe
petition submits to this Court the single issue of whether or not
the writ of attachment against TESDA and its funds, to cover PROVIs
claim against TESDA, is valid. The issue involves a pure question
of law and requires us to determine whether the CA was correct in
ruling that the RTC gravely abused its discretion in issuing a writ
of attachment against TESDA.PROVI argues that the CA should have
dismissed TESDAs petition forcertiorarias the RTC did not commit
any grave abuse of discretion when it issued the Orders datedJuly
16, 2001andAugust 24, 2001. According to PROVI, the RTC correctly
found that when TESDA entered into a purely commercial contract
with PROVI, TESDA went to the level of an ordinary private citizen
and could no longer use the defense of state immunity from
suit.PROVI further contends that it has alleged sufficient ultimate
facts in the affidavit it submitted to support its application for
a writ of preliminary attachment.Lastly, PROVI maintains that
sufficient basis existed for the RTCs grant of the writ of
preliminary attachment, since TESDA fraudulently misapplied or
embezzled the money earmarked for the payment of the contracted
supplies and services, as evidenced by the Certification as to
Availability of Funds.TESDA claims that it entered the Contract
Agreement and Addendum in the performance of its governmental
function to develop and establish a national system of skills
standardization, testing, and certification; in the performance of
this governmental function, TESDA is immune from suit. Even
assuming that it had impliedly consented to be sued by entering
into a contract with PROVI, TESDA posits that the RTC still did not
have the power to garnish or attach its funds since these are
public funds. Lastly, TESDA points out that PROVI failed to comply
with the elements for the valid issuance of a writ of preliminary
attachment, as set forth in Section 1, Rule 57 of the 1997 Rules of
Civil Procedure.THE COURTS RULINGWe find, as the CA did, that the
RTCs questioned order involved a gross misreading of the law and
jurisprudence amounting to action in excess of its
jurisdiction.Hence, we resolve to DENY PROVIs petition for lack of
merit.TESDA is aninstrumentalityof the government undertaking
governmental functions.R.A. No. 7796 created theTechnical Education
and Skills Development AuthorityorTESDAunder the declared policy of
the State to provide relevant, accessible, high quality and
efficient technical education and skills development in support of
the development of high quality Filipino middle-level manpower
responsive to and in accordance with Philippine development goals
and priorities.[17]TESDA replaced and absorbed the National
Manpower and Youth Council, the Bureau of Technical and Vocational
Education and the personnel and functions pertaining to
technical-vocational education in the regional offices of the
Department of Education, Culture and Sports and the apprenticeship
program of the Bureau of Local Employment of the DOLE.[18]Thus,
TESDA is an unincorporated instrumentality of the government
operating under its own charter.Among others, TESDA is empowered
to: approve trade skills standards and trade tests as established
and conducted by private industries; establish and administer a
system of accreditation of both public and private institutions;
establish, develop and support the institutions' trainors' training
and/or programs; exact reasonable fees and charges for such tests
and trainings conducted, and retain such earnings for its own use,
subject to guidelines promulgated by the Authority; andperform such
other duties and functions necessary to carry out the provisions of
the Act, consistent with the purposes of the creation of
TESDA.[19]Within TESDAs structure, as provided by R.A. No. 7769, is
a Skills Standards and Certification Office expressly tasked, among
others, to develop and establish a national system of skills
standardization, testing and certification in the country; and to
conduct research and development on various occupational areas in
order to recommend policies, rules and regulations for effective
and efficient skills standardization, testing and certification
system in the country.[20]The law likewise mandates that [T]here
shall be national occupational skills standards to be established
by TESDA-accredited industry committees. The TESDA shall develop
and implement a certification and accreditation program in which
private groups and trade associations are accredited to conduct
approved trade tests, and the local government units to promote
such trade testing activities in their respective areas in
accordance with the guidelines to be set by the TESDA. The
Secretary of Labor and Employment shall determine the occupational
trades for mandatory certification.All certificates relating to the
national trade skills testing and certification system shall be
issued by the TESDA through its Secretariat.[21]All these measures
are undertaken pursuant to the constitutional command that [T]he
State affirms labor as a primary social economic force, and shall
protect the rights of workers and promote their welfare;[22]that
[T]he State shall protect and promote the right of all citizens to
quality education at all levels, and shall take appropriate steps
to make such education accessible to all;[23]in order to afford
protection to labor and promote full employment and equality of
employment opportunities for all.[24]Under these terms, both
constitutional and statutory, we do not believe that the role and
status of TESDA can seriously be contested: it is an unincorporated
instrumentality of the government, directly attached to the DOLE
through the participation of the Secretary of Labor as its
Chairman, for the performance of governmental functions i.e.,the
handling of formal and non-formal education and training, and
skills development.As an unincorporated instrumentality operating
under a specific charter, it is equipped with both express and
implied powers,[25]and all State immunities fully apply to
it.[26]TESDA, as an agency of the State, cannot be sued without its
consent.The rule that a state may not be sued without its consent
is embodied in Section 3, Article XVI of the 1987 Constitution and
has been an established principle that antedates this
Constitution.[27]It is as well a universally recognized principle
of international law that exempts a state and its organs from the
jurisdiction of another state.[28]The principle is based on the
very essence of sovereignty, and on the practical ground that there
can be no legal right as against the authority that makes the law
on which the right depends.[29]It also rests on reasons of public
policy that public service would be hindered, and the public
endangered, if the sovereign authority could be subjected to law
suits at the instance of every citizen and, consequently,
controlled in the uses and dispositions of the means required for
the proper administration of the government.[30]The proscribed suit
that the state immunity principle covers takes on various forms,
namely: a suit against the Republic by name; a suit against an
unincorporated government agency; a suit against a government
agency covered by a charter with respect to the agencys performance
of governmental functions; and a suit that on its face is against a
government officer, but where the ultimate liability will fall on
the government.In the present case, the writ of attachment was
issued against a government agency covered by its own charter.As
discussed above, TESDA performs governmental functions, and the
issuance of certifications is a task within its function of
developing and establishing a system of skills standardization,
testing, and certification in the country.From the perspective of
this function, the core reason for the existence of state immunity
applies i.e., the public policy reason that the performance of
governmental function cannot be hindered or delayed by suits, nor
can these suits control the use and disposition of the means for
the performance of governmental functions. InProvidence Washington
Insurance Co. v. Republic of the Philippines,[31]we said:[A]
continued adherence to the doctrine of non-suability is not to be
deplored for as against the inconvenience that may be caused
private parties, the loss of governmental efficiency and the
obstacle to the performance of its multifarious functions are far
greater if such a fundamental principle were abandoned and the
availability of judicial remedy were not thus restricted. With the
well known propensity on the part of our people to go to court, at
the least provocation, the loss of time and energy required to
defend against law suits, in the absence of such a basic principle
that constitutes such an effective obstacle, could very well be
imagined.PROVI argues that TESDA can be sued because it has
effectively waived its immunity when it entered into a contract
with PROVI for a commercial purpose. According to PROVI, since the
purpose of its contract with TESDA is to provide identification PVC
cards with security seal which TESDA will thereafter sell to TESDA
trainees, TESDA thereby engages in commercial transactions not
incidental to its governmental functions.TESDAs response to this
position is to point out that it is not engaged in business, and
there is nothing in the records to show that its purchase of the
PVC cards from PROVI is for a business purpose. While TESDA admits
that it will charge the trainees with a fee for the PVC cards, it
claims that this fee is only to recover their costs and is not
intended for profit.We agree with TESDA.As the appellate court
found, the PVC cards purchased by TESDA from PROVI are meant to
properly identify the trainees who passed TESDAs National Skills
Certification Program the program that immediately serves TESDAs
mandated function of developing and establishing a national system
of skills standardization, testing, and certification in the
country.[32]Aside from the express mention of this function in R.A.
No. 7796, the details of this function are provided under DOLE
Administrative Order No. 157, S. 1992, as supplemented by
Department Order Nos. 3 thru 3-F, S. 1994 and Department Order No.
13, S. 1994.[33]Admittedly, the certification and classification of
trainees may be undertaken in ways other than the issuance of
identification cards, as the RTC stated in its assailed
Order.[34]How the mandated certification is to be done, however,
lies within the discretion of TESDA as an incident of its mandated
function, and is a properly delegated authority that this Court
cannot inquire into, unless its exercise is attended by grave abuse
of discretion.That TESDA sells the PVC cards to its trainees for a
fee does not characterize the transaction as industrial or
business; the sale, expressly authorized by the TESDA
Act,[35]cannot be considered separately from TESDAs general
governmental functions, as they are undertaken in the discharge of
these functions. Along this line of reasoning, we held
inMobilPhilippinesv. Customs Arrastre Services:[36]Now, the fact
that a non-corporate government entity performs a function
proprietary in nature does not necessarily result in its being
suable. If said non-governmental function is undertaken as an
incident to its governmental function, there is no waiver thereby
of the sovereign immunity from suit extended to such government
entity.TESDAs funds are public in character, hence exempt from
attachment or garnishment.Even assuming that TESDA entered into a
proprietary contract with PROVI and thereby gave its implied
consent to be sued, TESDAs funds are still public in nature and,
thus, cannot be the valid subject of a writ of garnishment or
attachment.Under Section 33 of the TESDA Act, the TESDA budget for
the implementation of the Act shall be included in the annual
General Appropriation Act; hence, TESDA funds, being sourced from
the Treasury, are moneys belonging to the government, or any of its
departments, in the hands of public officials.[37]We specifically
spoke of the limits in dealing with this fund inRepublic v.
Villasor[38]when we said:This fundamental postulate underlying the
1935 Constitution is now made explicit in the revised charter. It
is therein expressly provided, The State may not be sued without
its consent. A corollary, both dictated by logic and sound sense,
from such a basic concept, is thatpublic funds cannot be the object
of garnishment proceedings even if the consent to be sued had been
previously granted and the state liability adjudged.Thus in the
recent case ofCommissioner of Public Highwaysvs.San Diego, such a
well-settled doctrine was restated in the opinion of Justice
Teehankee:The universal rule that where the State gives its consent
to be sued by private parties either by general or special law, it
may limit claimant's action 'only up to the completion of
proceedings anterior to the stage of execution' and that the power
of the Courts ends when the judgment is rendered, since government
funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgments, is based on obvious
considerations of public policy.Disbursements of public funds must
be covered by the corresponding appropriation as required by law.
The functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects, as appropriated
by law.[Emphasis supplied.]We reiterated this doctrine inTraders
Royal Bank v. Intermediate Appellate Court,[39]where we said:The
NMPCs implied consent to be sued notwithstanding, the trial court
did not have the power to garnish NMPC deposits to answer for any
eventual judgment against it.Being public funds, the deposits are
not within the reach of any garnishment or attachment
proceedings.[Emphasis supplied.]As pointed out by TESDA in its
Memorandum,[40]the garnished funds constitute TESDAs lifeblood in
government parlance, its MOOE[41] whose withholdingviaa writ of
attachment, even on a temporary basis, would paralyze TESDAs
functions and services. As well, these funds also include TESDAs
Personal Services funds from which salaries of TESDA personnel are
sourced.Again and for obvious reasons, the release of these funds
cannot be delayed.PROVI has not shown that it is entitled to the
writ of attachment.Even without the benefit of any immunity from
suit, the attachment of TESDA funds should not have been granted,
as PROVI failed to prove that TESDA fraudulently misapplied or
convertedfunds allocated under the Certificate as to Availability
of Funds. Section 1, Rule 57 of the Rules of Court sets forth the
grounds for issuance of a writ of preliminary attachment, as
follows:SECTION 1.Grounds upon which attachment may issue. A
plaintiff or any proper party may, at the commencement of the
action or at any time thereafter, have the property of the adverse
party attached as security for the satisfaction of any judgment
that may be recovered in the following cases:(a)In an action for
recovery of a specified amount of money or damages, other than
moral and exemplary, on a cause of action arising from law,
contract, quasi-contract, delict or quasi-delict against a party
who is about to depart from the Philippines with intent to defraud
his creditors;(b)In an action for money or property embezzled or
fraudulently misapplied or converted to his use by a public
officer, or an officer of a corporation, or an attorney, factor,
broker, agent or clerk, in the course of his employment as such, or
by any other person in a fiduciary capacity, or for a willful
violation of duty;(c)In an action to recover the possession of
property unjustly or fraudulently taken, detained or converted,
when the property or any part thereof, has been concealed, removed
or disposed of to prevent its being found or taken by the applicant
or an authorized person;(d)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 concealing or
disposing of the property for the taking, detention or conversion
of which the action is brought;(e)In an action against a party who
has removed or disposed of his property, or is about to do so, with
intent to defraud his creditors;(f)In an action against a party who
does not reside and is not found in thePhilippines, or on whom
summons may be served by publication. [Emphasis
supplied.]Jurisprudence teaches us that the rule on the issuance of
a writ of attachment must be construed strictly in favor of the
defendant. Attachment, a harsh remedy, must be issued only on
concrete and specific grounds and not on general averments merely
quoting the words of the pertinent rules.[42]Thus, the applicants
affidavit must contain statements clearly showing that the ground
relied upon for the attachment exists.Section 1(b), Rule 57 of the
Rules of Court,that PROVI relied upon, applies only where money or
property has been embezzled or converted by a public officer, an
officer of a corporation, or some other person who took advantage
of his fiduciary position or who willfully violated his duty.PROVI,
in this case, never entrusted any money or property to TESDA. While
the Contract Agreement is supported by a Certificate as to
Availability of Funds (Certificate) issued by the Chief of TESDAs
Accounting Division, this Certificate does not automatically confer
ownership over the funds to PROVI.Absent any actual disbursement,
these funds form part of TESDAs public funds, and TESDAs failure to
pay PROVI the amount stated in the Certificate cannot be construed
as an act of fraudulent misapplication or embezzlement.In this
regard, Section 86 of Presidential Decree No. 1445 (The Accounting
Code) provides:Section 86.Certificate showing appropriation to meet
contract. Except in a case of a contract for personal service, for
supplies for current consumption or to be carried in stock not
exceeding the estimated consumption for three months, or banking
transactions of government-owned or controlled banks, no contract
involving the expenditure of public funds by any government agency
shall be entered into or authorized unless the proper accounting
official or the agency concerned shall have certified to the
officer entering into the obligation that funds have been duly
appropriated for the purpose and that the amount necessary to cover
the proposed contract for the current fiscal year is available for
expenditure on account thereof, subject to verification by the
auditor concerned.The certification signed by the proper accounting
official and the auditor who verified it, shall be attached to and
become an integral part of the proposed contract, andthe sum so
certified shall not thereafter be available for expenditure for any
other purpose until the obligation of the government agency
concerned under the contract is fully extinguished.[Emphasis
supplied.]By law, therefore, the amount stated in the Certification
should be intact and remains devoted to its purpose since its
original appropriation.PROVI can rebut the presumption that
necessarily arises from the cited provision only by evidence to the
contrary.No such evidence has been adduced.Section 1 (d), Rule 57
of the Rules of Courtapplies where a party is guilty of fraud in
contracting a debt or incurring an obligation, or in concealing or
disposing of the property for the taking, detention or conversion
of which the action is brought.InWee v. Tankiansee,[43]we held that
for a writ of attachment to issue under this Rule, the applicant
must sufficiently show the factual circumstances of the alleged
fraud because fraudulent intent cannot be inferred from the debtors
mere non-payment of the debt or failure to comply with his
obligation.The affidavit, being the foundation of the writ, must
contain particulars showing how the imputed fraud was committed for
the court to decide whether or not to issue the writ. To reiterate,
a writ of attachment can only be granted on concrete and specific
grounds and not on general averments merely quoting the words of
the rules.[44]Theaffidavit filed by PROVI through Elmer Ramiro, its
President and Chief Executive Officer, only contained a general
allegation that TESDA had fraudulent misapplied or converted the
amount ofP10,975,000.00that was allotted to it. Clearly, we cannot
infer any finding of fraud from PROVIs vague assertion, and the CA
correctly ruled that the lower court acted with grave abuse of
discretion in granting the writ of attachment despite want of any
valid ground for its issuance.For all these reasons, we support the
appellate courts conclusion that no valid ground exists to support
the grant of the writ of attachment against TESDA.The CAs annulment
and setting aside of the Orders of the RTC were therefore fully in
order.WHEREFORE, premises considered, we herebyDENYthe petition
filed by petitioner Professional Video, Inc., andAFFIRMthe Court of
Appeals Decision datedJuly 23, 2002, and Resolution ofSeptember 27,
2002, in CA-G.R. SP No. 67599.Costs against the petitioner.SO
ORDERED.G.R. No. 104405 May 13, 1993LIBERTY INSURANCE
CORPORATION,petitioner,vs.THE HONORABLE COURT OF APPEALS, HON.
NAPOLEON K. FLOJO, Presiding Judge of Branch II, RTC Manila; ATILLA
ARKIN, the CITY SHERIFF OF MANILA, the REGISTER OF DEEDS OF MANILA
and the REGISTER OF DEEDS OF MAKATI, METRO
MANILA,respondents.Cochico, Lopez, Delgado , Aquino & De la
Merced for petitioner.Edgar Dennis A. Padernal for private
respondent.BIDIN,J.:This is a petition for review
oncertiorariseeking to set aside and to declare null and void the
decision dated September 17, 1991 of the respondent Court of
Appeals dismissing petitioner's petition for review and its
resolution dated February 7, 1992 denying petitioner's Motion for
Reconsideration.On May 4, 1988 Jose H. Imperial Organizations,
Pty., thru Atty. Jose H. Imperial entered into an agreement with
Coca-Cola Bottlers Philippines to promote two concerts featuring a
group known as "Earth, Wind and Fire" on June 12 and 13, 1988 with
Coca-Cola sponsoring the concerts and the former promoting the
same.To ensure compliance with the terms of the agreement,
Coca-Cola required Imperial Organizations to put up a performance
bond. Petitioner Liberty Insurance, upon application of Imperial
Organization put up the performance bond in the amount of Three
Million Pesos (P3,000,000.00), the principal condition of which was
to "fully and faithfully guarantee the terms and conditions" of the
agreement dated May 24, 1988 entered into between Coca-Cola and
Imperial Organizations. More particularly, the bond was to
guarantee the return to Coca-Cola of "whatever portion of the cash
sponsorship and cash advances to be made by Coca-Cola to finance
the holding of the concerts on the dates aforesaid . . . ." (Rollo,
pp. 37)In turn, and as a condition for the issuance of said
performance bond, petitioner required Imperial Organizations, Jose
H. Imperial, Atilla Arkin, and Carmen Madlangbayan to execute an
indemnity agreement in its favor to indemnify it for any and all
damages including attorney's fees which the petitioner may incur by
reason of the issuance of the bond.It appears that while the
concerts took place, Imperial Organizations and private respondents
failed to comply with their obligations to Coca Cola, as a result
of which petitioner became liable upon its performance bond paying
Coca-Cola Three Million Pesos. Petitioner, demanded reimbursement
from Imperial, Arkin And Madlangbayan based on their indemnity bond
but to no avail.On August 7, 1988 petitioner filed with the
Regional Trial Court, National Capital Region, Branch 2, Manila a
complaint for damages with application for the issuance of a writ
of preliminary attachment against private respondents.On September
20, 1988, the Trial Court thru the Hon. Rosario A. de Leon, issued
an order allowing the issuance of the writ, stating that.:. . .
There could have been fraud committed by the defendants Arkin and
Madlangbayan in promising to give as security or collateral to
their Indemnity Agreement, which caused the plaintiff to release
the security bond, when as it turned out, the Transfer Certificate
of Title of a parcel of land supposedly issued by the Register of
Deeds of Rizal turned out to be fake, as the true land title number
was issued over a different parcel of land issued in the name of a
person other than defendant Madlangbayan, while defendant Atilla
Arkin delivered an official receipt in the name of a third party
but which vehicle was allegedly sold to him free from lien and
encumbrance, when it turned out that the car was heavily mortgaged
to a third party, . . . .The conclusion of fraud is inevitable in
view of the above circumstances, for any (sic) rate fraud is a
state of mind that maybe inferred from the circumstances extant in
the case (Republicvs.Gonzales, 13 SCRA 633).In addition to the fact
that these representations/promises of Arkin and Madlangbayan were
made prior to the release of the bond (the bond by then had already
been executed), it can still be said that this fraud existed when
the obligation was contracted in line with Sec. 1, par (d), Rule
57, which reads: An attachment may issue in an action against a
party who has been guilty of fraud in contracting or incurring the
obligation upon which the action is brought.A debt is fraudulently
contracted if at the time of contracting it, the debtor entertained
an intention not to pay, or an intention not to keep a collateral
agreement regarding the disposition of a property purchased on
credit. (Francisco, Rules of Court, Second [1985] Edition, p. 21) .
. . (Rollo, pp. 38-39)On May 10, 1989 respondent Arkin filed a
motion to Quash/ Recall Writ of Attachment. On October 19, 1989,
the trial court, this time presided by respondent judge Napoleon K.
Flojo, denied the motion, reasoning out as follows:Defendant Atilla
Arkin posits that no ground existed for the issuance of the
preliminary attachment because he was not guilty of fraud in
incurring the obligation under the indemnity agreement.The Court
granted the prayer for a writ of preliminary attachment after a
finding of fraud from the evidence adduced by the parties. This
conclusion was supported by substantial evidence.There is no cogent
reason from the arguments posed by the movant to warrant and/or
recall of the writ.Furthermore, the complaint invokes another
ground for the grant of the writ and that is, "in an action against
a party who has removed be (sic) disposed of his property, or is
about to do so, with the intent to defraud his creditors," . .
.,evidenced by three conveyances or disposals of properties by
defendant Atilla Arkin though made before the institution of the
action, is a circumstance tending to show fraudulent conveyance
with intent to defraud his creditors. Especially so, when the
payment of herein claim which the action is brought is not secured
by any mortgage or pledge of real (sic) personal property and
plaintiff had no other sufficient security for the enforcement of
the claim.(Rollo, p. 58; emphasis supplied).After more than a year,
or on December 14, 1990, Arkin filed a Motion for Reconsideration
of the aforementioned order of denial.On March 6, 1991, respondent
judge reversed his earlier ruling and instead issued two orders,
(1) granting Arkin's Motion for Reconsideration and directing the
lifting of the writ of preliminary attachment earlier issued, and
(2) ordering the deputy sheriff assigned to said court to
immediately discharge or lift said writ. The first order, among
other things, states:xxx xxx xxxThe Court, presided at the time by
Judge Rosalio De Leon, found that the defendant has been guilty of
fraud in inveigling the plaintiff to issue the surety bond by
offering false collaterals. The ground relied upon by the Court to
issue the attachment was based on Section 1 (d) of Rule 57 of the
Rules of Court , which states:"Sec. 1. Grounds upon which
attachment may issue. A plaintiff or any party may, at the
commencement of the action or at anytime thereafter, have the
property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered in the following
cases:xxx xxx xxx(d) In action (sic) against a party who has been
guilty of fraud in contracting the obligation upon which the action
is brought, . . . ."To constitute a ground for attachment, fraud
should be committed prior to or simultaneous with the birth of the
obligation sued upon, which in this case is the May 30, 1988 surety
bond.xxx xxx xxxA close examination of the evidence on record shows
that the delivery of the fake collaterals were made to Eduardo
Cunanan on June 1, 1988, or two (2) days after the issuance by the
plaintiff of the surety bond. Thus, the offering of the fake
Transfer Certificate of Title and encumbered Mercedes Benz car was
not prior to or simultaneous with the execution of the Surety Bond.
Such being the case, the offer of the collaterals were not the
cause which induced the plaintiff to issue the surety bond. It is
therefore clear that the issuance of the surety bond on May 30,
1988 was not based on the alleged fraud of the defendant Arkin
offering the fake collaterals.xxx xxx xxxWith regards (sic) to the
allegations that the defendant Arkin has removed or disposed of his
property, with intent to defraud his creditors, suffice it to say
that (when) the law authorizes the issuance of a writ preliminary
attachment (it) should be construed in favor of the defendant and
before issuing an Order to that effect, the judge should require
that all the requisites prescribed by law be complied (with),
without which a judge acquires no jurisdiction to issue the
writ.xxx xxx xxxFurthermore, allegations that debtors were removing
or disposing some of the properties with intent to defraud
creditors must be specific.xxx xxx xxxIn the present case the
plaintiff did not prove the intent of defendant Arkin to defraud
creditors. Aside From the fact that the alleged dispositions were
made long prior to the filing of the case, the alleged dispositions
were made of conjugal partnership property which were then the
subjects of partition between Arkin and his estranged wife. . . .
(Rollo, pp. 42-43).Aggrieved, petitioner filed a special civil
action forcertiorariwith respondent Court of Appeals to set aside
the above orders of respondent judge.Respondent court dismissed the
petition on the ground that the filing of the said petition was
premature considering that there was yet a remedy available in the
ordinary course of law, i.e., filing a motion for reconsideration
of the challenged orders. Hence, this petition with the following
assignment of errors:I. A MOTION FOR RECONSIDERATION IS NOT ALWAYS
A CONDITION PRECEDENT TO THE FILING OF A SPECIAL CIVIL ACTION
FORCERTIORARI, AS THERE IS NO APPEAL OR ANY PLAIN, SPEEDY AND
ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO HEREIN
PETITIONER;II. RESPONDENT HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE DISSOLUTION OF THE WRIT OF PRELIMINARY ATTACHMENT ON
THE BASIS OF SECTION 13, RULE 57, OF THE RULES OF THE COURT
SUPPORTED (SIC) BY ANY EVIDENCE;III. RESPONDENT COURT OF APPEALS
COMMITTED GRAVE ERROR OF LAW IN CONCLUDING THAT HEREIN PETITIONER
FAILED TO RAISE AS AN ISSUE THE DELAYED FILING OF PRIVATE
RESPONDENT'S MOTION FOR RECONSIDERATION DATED DECEMBER 14, 1990, IN
PETITIONER'S OPPOSITION THERETO.IV. THE APPREHENSION OF THE HEREIN
PETITIONER REGARDING THE PROPENSITY OF PRIVATE RESPONDENT TO
DISPOSE OF HIS PROPERTIES IN FRAUD OF HIS CREDITORS TURNED OUT TO
BE TRUE AND CORRECT. (Rollo, pp. 24-26, 30).In brief, the questions
posited by the instant petition may be consolidated into two
issues, namely:1) Whether or not the writ of preliminary attachment
in question was properly or regularly issued and 2) Whether or not
petitioner's failure to file a motion for reconsideration of the
questioned orders of the courta quobars the filing of a special
civil action forcertioraribefore the respondent court.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,
Section 1 (d) of Rule 57 authorizes the plaintiff or any proper
party to have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered
therein. Thus:Rule 57, Sec. 1. Grounds upon which attachment
mayissue. (d): In an action against a party who has been guilty of
a fraud of contracting the debt or incurring the obligation upon
which the action is brought, or in concealing or disposing of the
property for the taking, detention or conversion of which the
action is brought;To sustain an attachment on this ground, it must
be shown that the debtor in contracting the debt or incurring the
obligation intended to defraud the creditor. 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. A debt is
fraudulently contracted if at the time of contracting it the debtor
has a preconceived plan or intention not to pay, as it is in this
case. Fraud is a state of mind and need not be proved by direct
evidence but may be inferred from the circumstances attendant in
each case (Republic v. Gonzales, 13 SCRA 633 [1965]).Here, it has
been established that all the collaterals given by the respondent
Arkin as security for the bond were either fraudulent or heavily
encumbered. Records show that Transfer Certificate of Title No.
300011 supposedly issued by the Register of Deeds of Rizal covering
a parcel of land with an area of 25,750 square meters located at
Muntinlupa, Las Pias, M.M. and registered in the name of Carmen
Madlangbayan, used as one of the collaterals, turned out to be fake
and spurious as the genuine TCT No. 300011 of the Office of the
Register of Deeds of Rizal covers a parcel of land located
inAngono, Rizal with an area of 514 square meters registered in the
name of persons other than respondents Imperial, Arkin, and
Madlangbayan. Likewise, the supposed lien-free motor vehicle
offered as collateral turned out to be heavily mortgaged and was
even disposed of without informing petitioner. Furthermore, it has
also been proven that subsequent to the issuance of the May 30,
1988 surety bond, respondent Arkin started disposing of his other
properties. Prior to the filing of the complaint, respondent not
only had sold the motor vehicle given as collateral but that his
two other condominium units were also alienated in favor of a
company of which respondent Arkin is the president. All these
circumstances unerringly point to the devious scheme of respondent
Arkin to defraud petitioner.It is therefore clear that fraud was
present when private respondent, among others, entered into an
indemnity agreement with petitioner. The actuations of respondent
Arkin indubitably lead to the conclusion that he never entertained
the idea of fulfilling his obligations under the agreement and was
bent on defrauding petitioner from the very beginning.Under the
circumstances, we perceive no impropriety or irregularity in the
issuance of the writ of attachment especially so where petitioner
has fully complied with the requirements for the issuance
thereof.On the contrary, what we see as having been attended by
irregularity is the assailed order of respondent judge lifting the
writ of attachment based on grounds which are contradicted by the
evidence on record. It is a fact that respondent Arkin gave fake
land titles as collaterals and even disposed of real properties in
his obvious attempt to defraud petitioner. And yet, respondent
judge concluded that petitioner's allegation that respondent
Arkin's fraudulent alienation of his properties has no foundation
in fact. This is plain absurdity. As respondent judge himself noted
in his earlier order denying respondent Arkin's motion to quash
writ of attachment, the latter's three (3) conveyances, "though
made before the institution of the action, is a circumstance
tending to show fraudulent conveyance with intent to defraud his
creditors. Especially so, when the payment of herein claim upon
which the action is brought is not secured by any mortgage or
pledge of real (or) personal property and plaintiff had no other
sufficient security for the enforcement of the claim" (Rollo,p.
58). Such being the case, respondent Arkin's claim that the writ of
attachment has been irregularly issued should not have merited
serious consideration by respondent judge.Be that as it may, the
instant case being "an action against a party who has been guilty
of fraud in contracting the obligation upon which the action is
brought", respondent Arkin is not allowed to file a motion to
dissolve the attachment on the ground that the writ has been
improperly or irregularly issued. As we held inMindanao Savings and
Loan Assoc. vs. Court of Appeals(172 SCRA 480 [1989]):. . ., when
the preliminary attachment is issued upon a ground which is at the
same time the applicant's cause of action: e.g., . . . 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,
the defendant is not allowed to file a motion to dissolve the
attachment under Section 13 of Rule 57 by offering to show the
falsity of the factual averments in the plaintiff's application and
affidavits on which the writ was based and consequently that the
writ based therein had been improperly, or irregularly, issued the
reason being that the hearing on such motion for dissolution of the
writ would be tantamount to a trial on the merits. In other words,
the merits of the action would be ventilated at a mere hearing of a
motion, instead of the regular trial. Therefore, when the writ of
attachment is of this nature, the only way it can be dissolved is
by a counterbond.Petitioner next contends that motion for
reconsideration need not at all times be resorted to before a
special civil action forcertiorarimay be instituted before
respondent court.Ordinarily,certiorariwill not lie unless an
inferior court, through a motion for reconsideration, had been
given an opportunity to correct the imputed errors. However, this
rule admits of exceptions such as 1) when the issue raised is one
purely, of law; 2) where public interest is involved; 3) in cases
of urgency (Quirino vs. Grospe, 169 SCRA 702 [1989]); or 4) where
special circumstances warrant immediate or more direct action
(People vs. Dacudao, 170 SCRA 489 [1989]).In the case at bar,
petitioner's failure to file a motion for reconsideration in the
trial court before commencingcertiorariproceedings in the Court of
Appeals is not fatal considering the existence of special
circumstances that warrant immediate and more direct action (Saldaa
vs. CA, 190 SCRA 396 [1990]).The indecent haste with which
respondent Arkin had been disposing of his properties demonstrates
the imperative need for a more adequate relief requiring an
immediate and more direct action. There was an urgency which caused
the present case to fall under one of the exceptions thereby
allowing petitioner to file a petition forcertiorariwithout the
need of first filing a motion for reconsideration.Filing a motion
for reconsideration would have served no useful purpose nor can it
be considered a plain, speedy and adequate remedy since the order
directing the sheriff to discharge or lift the writ of attachment
was issued on the same day the order granting the quashal was made.
It would not have automatically forestalled Arkin from further
disposing of his properties. It is rather disturbing how respondent
judge, after ruling in his order of October 19, 1989, denying
respondent's motion to quash, that the trial court's finding of
fraud in incurring the obligation under the indemnity agreement was
supported by substantial evidence, would, in his order of March 6,
1991 granting the motion for reconsideration, based on the same
substantial evidence supporting a finding of fraud, later reverse
himself and declare that "the plaintiff (petitioner herein) did not
prove the intent of defendant Arkin to defraud creditors."Through
the order for the "immediate" lifting of the writ, respondent
Judge, in one swift stroke, completely subverted the valid order of
attachment issued after a finding of fraud, which finding he
himself has declared as supported by substantial evidence. We hold
that respondent judge in issuing the contested orders has acted
capriciously, whimsically and arbitrarily and with grave abuse of
discretion amounting to lack or in excess of jurisdiction
correctible by the special writ ofcertiorari.WHEREFORE, the
petition is GRANTED. The assailed order of respondent judge dated
March 6, 1991 is SET ASIDE and the order dated October 19, 1989 is
hereby REINSTATED. Costs against private respondent.SO ORDERED.G.R.
No. 23237, Walter E. Olsen & Co. v. Olsen, 48 Phil. 238Republic
of the PhilippinesSUPREME COURTManilaEN BANCNovember 14, 1925G.R.
No. 23237WALTER E. OLSEN & CO.,plaintiff-appellee,vs.WALTER E.
OLSEN,defendant-appellant.Ross, Lawrence and Selph and Antonio T.
Carrascoso, Jr., for appellant.Gibbs and McDonough for
appellee.VILLA-REAL,J.:This is an appeal taken by the defendant
from a judgment of the Court of First Instance of Manila,
sentencing him to pay plaintiff corporation the sum of P66,207.62
with legal interest thereon at the rate of 6 per cent per annum
from February 1, 1923, the date of the filing of the complaint,
until full payment and the costs, and dismissing the
cross-complaint and counterclaim set up by him.As ground of his
appeal, the defendant assigns four errors as committed by the trial
court, to wit: (1) The holding that the defendant-appellant
contracted fraudulently the debt which the plaintiff-appellee seeks
to recover in its complaint; (2) its failure to set aside the writ
of preliminary attachment issued by itex parte; (3) the fact of it
not having absolved the defendant from the complaint of the
plaintiff corporation and of not having given judgment for the
defendant and against the plaintiff for the amount of his
counterclaim, after deducing the debt due from him to the plaintiff
corporation in the sum of P66,207.62; and (4) its action in denying
the motion for new trial of the defendant.As the first two supposed
errors are intimately connected with each other, we will discuss
them jointly.The first question that arises is whether or not an
order denying a motion for the annulment of a preliminary
attachment may be reviewed through an appeal.The preliminary
attachment is an auxiliary remedy the granting of which lies within
the sound discretion of the judge taking cognizance of the
principal case upon whose existence it depends. The order of the
judge denying a motion for the annulment of a writ of preliminary
attachment, being of an incidental or interlocutory and auxiliary
character, cannot be the subject of an appeal independently from
the principal case, because our procedural law now in force
authorizes an appeal only from a final judgement which gives an end
to the litigation. (Section 143,Act No. 190: 3 C. J., 549 par.
389.) This lack of ordinary remedy through an appeal does not mean,
however, that any excess a lower court may commit in the exercise
of its jurisdiction is without remedy; because there are the
especial remedies, such as certiorari, for the purpose. (Leung Ben
vs. O'Brien,38 Phil., 182.)While it is true that an order denying a
motion for the annulment of a preliminary attachment is not subject
to review through an appeal independently from the principal case,
it not consisting a final order, yet when the writ of preliminary
attachment becomes final by virtue of a final judgment rendered in
the principal case, said writ is subject to review jointly with the
judgment rendered in the principal case through an ordinary appeal.
The appellate court has the power to revoke or confirm said order,
in like manner as a judgment on the merits; because it is a ruling
to which an exception may be taken, and therefore is subject to
review in an appeal by bill of exceptions. (Secs. 141-143,Act No.
190.) The fact that section 441 of theCode of Civil Proceduredoes
not provide any remedy against the granting or denial of a motion
for the annulment of a writ of preliminary attachment, except in
case of excess of jurisdiction, does not confer upon said order a
final and irrevocable character, taking it out from the general
provisions as to appeal and review, for a special provision is
necessary for that purpose.Having arrived at the conclusion that an
order denying a motion for the annulment of a preliminary
attachment may be reviewed in an appeal taken from a final judgment
rendered in the principal case, in which said order was entered as
an auxiliary remedy, we will now turn to consider the question
whether or not the trial court committed error in denying the
motion for the annulment of the preliminary attachment levied upon
the property of the defendant-appellant.It is admitted by the
defendant-appellant that he is indebted to the plaintiff-appellee
corporation in the sum of P66,207.62, but denies that he has
contracted said debt fraudulently.The evidence shows that the
defendant-appellant was president-treasurer and general manager of
the plaintiff-appellee corporation and exercised direct and almost
exclusive supervision over its function, funds and books of account
until about the month of August, 1921. During that time he has been
taking money of the corporation without being duly authorized to do
so either by the board of directors or by the by-laws, the money
taken by him having amounted to the considerable sum of P66,207.62.
Of this sum, P19,000 was invested in the purchase of the house and
lot now under attachment in this case, and P50,000 in the purchase
of 500 shares of stock of Prising at the price of P100 per share
for himself and Marker. A few days afterwards he began to sell the
ordinary shares of the corporation for P430 each. The
defendant-appellant attempted to justify his conduct, alleging that
the withdrawal of the funds of the corporation for his personal use
was made in his current account with said corporation, in whose
treasury he deposited his own money and the certificates of title
of his shares, as well as of his estate, and that at the first
meeting of the stockholders, which took place on February 1, 1919,
a statement of his account with a debit balance was submitted and
approved.Having, as he had, absolute and almost exclusive control
over the function of the corporation and its funds by virtue of his
triple capacity as president, treasurer and general manager, the
defendant-appellant should have been more scrupulous in the
application of the funds of said corporation to his own use. As a
trustee of said corporation, it was his duty to see by all legal
means possible that the interests of the stockholders were
protected, and should not abuse the extraordinary opportunity which
his triple position offered him to dispose of the funds of the
corporation. Ordinary delicacy required that in the disposition of
the funds of the corporation for his personal use, he should be
very careful, so as to do it in such a way as would be compatible
with the interest of the stockholders and his fiduciary character.
And let it not also be said that he did every thing openly and with
the security of his shares of stock, because as he could dispose of
the funds of the corporation so he could dispose of his won shares
and with greater freedom. And let it not also be said that other
officers of the corporation, such as the vice-president, the
secretary and other chiefs and employees, were doing the same
thing, because that does not show but that his bad example had
spread among his subordinates and all believed themselves with the
same right as their chief to dispose of the funds of the
corporation for their personal use, although it were merely by way
of loan, without any security of whatever kind of course. The
approval of his account at the first meeting of the stockholders
cannot be considered as a justification of his conduct, nor does it
remove every suspicion of bad faith, because the corporation was
constituted exclusively by the defendant-appellant himself and his
cospeculator, Marker, and nothing else could be expected from it.
As to the debt he owed to the corporation, Walter E. Olsen was in
effect a lender and a borrower at the same time. The conduct of the
defendant-appellant in connection with the funds of the corporation
he represented was more than an irregularity; and while it is not
sufficiently serious to constitute a criminal fraud, it is
undoubtedly a fraud of a civil character, because it is an abuse of
confidence to the damage of the corporation and