Title
Lorenzo Shipping Corp. vs. Villarin
Case
G.R. No. 175727
Decision Date
Mar 6, 2019
LSC, a nominal defendant, contested writs of attachment and deposit orders in a dispute over unpaid shares from a cargo handling contract, with SC ruling in its favor due to lack of contractual ties.
writ of preliminary attachment
trial court
consolidated petitions

Case Summary (G.R. No. 175727)

Factual Background

Lorenzo Shipping Corporation operates interisland vessels. Cebu Arrastre and Stevedoring Services Corporation contracted with LSC to provide cargo handling under a Cargo Handling Contract dated March 8, 1997. On February 20, 1997, Guerrero G. Dajao, as CASSCOR President and General Manager, executed a Memorandum of Agreement (MOA) with Serafin Cabanlit and Florencio Villarin, whereby Villarin and Cabanlit would manage arrastre and stevedoring operations subcontracted from CASSCOR. The MOA allocated percentages of proceeds as follows: CASSCOR five percent, Dajao two percent, ten percent for taxes and expenses, ten percent for the Philippine Ports Authority, and the remainder allegedly due to Villarin and Cabanlit, whom they claimed to be entitled to seventy-three percent.

The Filing and Nature of the Main Action

Villarin, Cabanlit, and FCC filed a complaint for specific performance, accounting, and damages against CASSCOR and Dajao, later amended to implead LSC as a nominal defendant and to include prayers for a writ of preliminary attachment against CASSCOR and Dajao and for a mandatory injunction against LSC. The main relief sought was enforcement of the MOA against CASSCOR and Dajao; all other remedies were ancillary.

The Attachment Proceedings Below

A writ of preliminary attachment was issued against CASSCOR and Dajao on June 21, 2000. After re-pleadings and re-raffling, RTC Branch 6, by order dated May 11, 2004, granted a renewed motion for preliminary attachment conditioned upon a Php 150,000 bond. A Notice of Garnishment was served on LSC on May 20, 2004. LSC posted a counter-bond and the attachment writ was discharged. Thereafter, Judge Anacleto Caminade issued an order on June 16, 2004 clarifying that the writ of attachment extended to all defendants, including LSC, on the ground that all defendants were allegedly guilty of fraud in the performance of the obligation and that privity did not preclude attachment. LSC sought relief from the Court of Appeals.

The Deposit Motion and Trial-Court Orders

On November 23, 2004 Villarin and co-plaintiffs moved to require LSC to deposit in court Php 10,297,499.59 allegedly held in trust, supporting the motion with an audit report and a January 5, 2004 letter from LSC’s Vice-President for Finance, Julita Valeros, reflecting an external auditor’s statement of unpaid LSC liabilities to CASSCOR in that amount. RTC Branch 20, Judge Bienvenido R. Saniel, Jr., issued an order on August 12, 2005 directing LSC to deposit the specified sum in a joint court account for the plaintiffs and CASSCOR. LSC moved for reconsideration. On March 9, 2006, Judge Saniel granted reconsideration, set aside the August 12, 2005 order, and denied the motion for writ of execution, holding the counter-bond adequate and the deposit order unnecessary and oppressive. Villarin, et al. appealed to the Court of Appeals.

Rulings of the Court of Appeals

In the deposit matter the Court of Appeals reinstated the August 12, 2005 deposit order in a September 7, 2006 decision, concluding that Judge Saniel committed grave abuse of discretion by setting aside the deposit order and that the Php 300,000 counter-bond would not adequately secure an alleged liability exceeding Php 10,000,000. The appellate court treated the Valeros letter as a judicial admission of LSC’s liability and grounded the deposit order on Rule 135, Section 6. In the attachment matter the Court of Appeals dismissed LSC’s challenge to the extension of preliminary attachment, holding that the complaint alleged fraud by all defendants and that privity of contract was not required under Section 1(d), Rule 57. LSC filed separate petitions for certiorari to the Supreme Court, which were consolidated.

Issues Presented to the Supreme Court

LSC urged two principal contentions. First, in G.R. No. 178713, LSC argued that the Court of Appeals erred in affirming the RTC’s extension of the writ of preliminary attachment to LSC, a nominal defendant lacking contractual privity with Villarin, and that the attachment order lacked the concrete, specific grounds required by jurisprudence. Second, in G.R. No. 175727, LSC asserted that the Court of Appeals erred in ordering enforcement of the August 12, 2005 deposit order because the order amounted to a prejudgment, an unauthorized third attachment, and an extraordinary mandatory injunction not sanctioned as a provisional remedy under Rules 57 to 61; it further contended that the deposit order exceeded the court’s jurisdiction given the docket fees paid and that the Valeros letter did not constitute a judicial admission of liability.

Supreme Court’s Ruling — Overarching Disposition

The Supreme Court granted both petitions. It ruled that the Court of Appeals erred in both instances. In G.R. No. 178713 the Court reversed and set aside the RTC order of June 16, 2004 and annulled the writ of attachment insofar as it pertained to Lorenzo Shipping Corporation, ordering return of LSC’s counter-bond. In G.R. No. 175727 the Court reversed the Court of Appeals decision reinstating the deposit order, reinstated the RTC orders of March 9, 2006 and May 30, 2006 that had set aside the August 12, 2005 order, and directed the trial court to return any amounts deposited by LSC. The RTC was ordered to try the merits of Civil Case No. CEB-25283 with utmost dispatch.

Legal Basis for the Court’s Decision on Attachment

The Court reaffirmed that a writ of preliminary attachment is an extraordinary, harsh provisional remedy governed by Rule 57, and that its requisites must be strictly shown. Under Section 1(d), Rule 57, attachment for fraud in contracting or performing an obligation requires proof that the debtor, at the time of contracting, intended to defraud the creditor. The Court relied on prior authority requiring a juridical tie between the parties whose properties are sought to be attached. Because the MOA was executed only by CASSCOR and Villarin (through Dajao) and because LSC was not a party to the MOA, Article 1311 of the New Civil Code precluded binding LSC by that contract absent assignment of rights. The Court held that LSC could not be found guilty of fraud under Section 1(d) where it had no contractual relation with Villarin, and that the trial court and the appellate court erred in extending the writ to LSC on that basis. The Court further explained that even if an implied or constructive trust were alleged, a constructive trust does not create the type of fiduciary relation contemplated by Section 1(b), and therefore would not justify attachment under that provision. The Court therefore annulled the extension of the writ insofar as it affected LSC.

Legal Basis for the Court’s Decision on Deposit Orders

The Court recognized that provisional deposit orders are available under the inherent powers of courts as expressed in Rule 135, Sections 5(g) and 6, and that jurisprudence has sustained such orders in discrete circumstances. The Court distilled two categories of proper provisional deposit orders: (1) cases in which the depositor is precluded from contesting demandability of the money (for example, interpleader or where rescission is sought), and (2) cases in which the depositor regularly receives funds from nonparties during the pendency of litigation (for example, rental receipts placed in custodia legis pending resolution of ownership). The Court examined prior decisions such as Eternal Gardens Memorial Parks Corp. v. First Special Cases Division, Reyes v. Lim, Go v. Go, Bustamante v. CA, and Province of Bataan v. Hon. Villafuerte, Jr. against the facts at bar.

Applying those criteria, the Court found the deposit order improper. The deposit sought from LSC derived from LSC’s own account and was not part of an established flow of receipts from nonparties; LSC had not resigned its interest and could contest demandability because liability between LSC and Villarin was disputed and LSC had claims against CASSCOR that could offset alleged liabilities. Moreover, LSC was not a party to the MOA and no juridical tie justified directing a deposit by LSC for the benefit of Villarin. The Court warned that permitting deposit orders in such circumstances would subvert the strict rules on preliminary attachment and unjustly impose burdens on a nonprivy party. Consequently the Court reinstated the trial cou

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms