ABOITIZ & COMPANY, INC., HONORABLE VICENTE N. CUSI, JR., JUDGE OF THE COURT OF FIRST INSTANCE OF DAVAO, AND THE PROVINCIAL SHERIFF OF DAVAO DEL SUR, PETITIONERS, VS. COTABATO BU…

Aboitiz and Company versus Cotabato Bus Company

The Case

This is a petition for review by certiorari brought by Aboitiz and Company, Incorporated against Cotabato Bus Company, the Honorable Vicente Cusi, Junior, presiding judge of the Court of First Instance of Davao, and the Provincial Sheriff of Davao del Sur. Aboitiz, a creditor, had obtained a writ of preliminary attachment over the buses, machinery, and equipment of the bus company in a suit for the collection of a money debt. The Court of Appeals annulled that writ, and Aboitiz asked the Supreme Court to reverse. The case matters because it fixes the boundaries of the provisional remedy of attachment: insolvency is not a ground, and the removal or disposal of property that justifies attachment must be a real act done with intent to defraud creditors, not a mere apprehension.

Procedural History

Aboitiz filed a verified complaint for the collection of money against Cotabato Bus Company in the Court of First Instance of Davao. On the strength of an affidavit of merit, the trial court issued a writ of preliminary attachment ex parte, and the provincial sheriff attached the bus company's personal properties. The bus company moved urgently to dissolve or quash the writ, attaching the affidavit of its Assistant Manager. Aboitiz opposed, and the trial court denied the motion, ruling that the testimony of the bus company's witness corroborated rather than disproved the plaintiff's affidavit. The trial court likewise denied the motion for reconsideration.

The bus company then went to the Court of Appeals on a petition for certiorari, alleging grave abuse of discretion on the part of the trial judge. The Court of Appeals gave due course, issued a restraining order, and in its decision declared the writ of attachment and the subsequent orders null and void, ordered the release of the attached properties, and made the restraining order permanent. Aboitiz then came to the Supreme Court by appeal by certiorari, assigning errors directed at the appellate court's treatment of the evidence.

Facts

Aboitiz sued Cotabato Bus Company to collect a debt of 155,739 pesos and 41 centavos. In its complaint and in the affidavit of merit executed by its Assistant Manager, Aboitiz alleged that the bus company had removed or disposed of its properties or assets, or was about to do so, with intent to defraud its creditors. On that showing the trial court issued a writ of preliminary attachment, and the sheriff attached the bus company's buses, machinery, and equipment.

The bus company moved to dissolve the writ, and its Assistant Manager swore that the company had not been selling or disposing of its properties, did not intend to do so, and was in fact acquiring more assets. The trial court denied the motion, and denied reconsideration. The Court of Appeals then annulled the writ and ordered the properties released.

Before the Supreme Court, Aboitiz pressed several circumstances: that the company's bank account had been reduced to nil despite a declared daily income of from 10,000 to 14,000 pesos; that even a payment of 634 pesos was made with the personal check of the company's president and majority stockholder; that debts to other creditors, including the Development Bank of the Philippines, remained unpaid; and that five attached buses had been repaired and removed during the pendency of the motion to dissolve. The Court noted that the attached buses were nearly junks, that the five repaired buses were substituted with five others in the same condition as the repaired ones had been before repair, and that the buses were mortgaged to the Development Bank of the Philippines.

Issues

• Whether or not insolvency of the defendant is a ground for the issuance of a writ of preliminary attachment.
• Whether or not the bus company removed or disposed of its properties, or was about to do so, with intent to defraud its creditors, so as to justify the writ under the rule on attachment.
• Whether or not the Court of Appeals committed reversible error, or grave abuse of discretion, in annulling the writ of attachment and the orders of the trial court.

Applicable Provisions

Section 1, paragraph (e), of Rule 57 of the Rules of Court, as discussed in the decision, provides:

That the defendant has removed or disposed of his property, or is about to do so, with intent to defraud his creditors.

This is the ground invoked by Aboitiz, and the whole case turns on whether the facts bring the bus company within it.

Ruling

On the first issue, the Court held that insolvency is not a ground for the issuance of a writ of attachment. It affirmed the position of the Court of Appeals, which rested on the explicit ruling in Max Chamorro and Company versus Philippine Ready Mix Concrete Company. The Court observed that Aboitiz in effect claimed insolvency had been proven, particularly by the bank account reduced to nil, but that this could not sustain the writ.

On the second issue, the Court held that the removal or disposal required by the rule had not been shown. The repair and substitution of the five buses was not the removal contemplated by the rule; the repair was evidently motivated by a desire to serve the riding public, not to defraud creditors, and there was no showing that the repaired buses were not put on the run. Since the buses were mortgaged to the Development Bank of the Philippines, their removal or disposal was very remote, if not nil, and the bank would not have failed to take civil and criminal action had removal in fact occurred. The dwindling of the bank account was easily explained by heavy operating expenses, including salaries and wages. The Court also stressed that buses, machinery, and equipment needed to continue a transportation business are extremely hard to remove secretly, their sale is not difficult of detection, and Aboitiz adduced no proof of any sale or transfer.

On the third issue, the Court found that the Court of Appeals had not committed any reversible error, much less grave abuse of discretion, with one exception: the restraining order should not have restrained the trial court from hearing the case altogether.

Doctrine

Insolvency is not a ground for the issuance of a writ of preliminary attachment; the applicant must bring the case within one of the grounds fixed by the Rules, here the removal or disposal of property with intent to defraud creditors. The removal or disposal must be a real act, proved by evidence, done with fraudulent intent; a mere apprehension, or circumstances equally consistent with ordinary business operations, will not suffice. Property that is essential to the continued operation of a business, and especially property mortgaged to a creditor who takes no action, is not readily the subject of a fraudulent removal, and the burden rests on the applicant to prove an actual sale or transfer.

Disposition

The petition was denied, the decision of the Court of Appeals was sustained, and the trial court was ordered to immediately proceed with the hearing of the collection case and decide it in accordance with law and the evidence.

Remember This

Memorize the line that insolvency is not a ground for attachment, and that the removal or disposal of property must be real and fraudulent, not merely feared. Examiners use this case to test the grounds for preliminary attachment and the rule that findings of fact of the Court of Appeals are conclusive when the question raised is factual.