JOSEPHINE CRUZ MALOLOS REPRESENTED BY HER HEIRS EMMANUEL, MARIA MARINELA AND MARIA MARJORIE, ALL SURNAMED MALOLOS, PETITIONERS, VS. ASIA PACIFIC FINANCE CORPORATION AND HONORABL…

Malolos versus Asia Pacific Finance Corporation

The Case

This is a special civil action for certiorari and mandamus brought by the heirs of Josephine Cruz Malolos against Asia Pacific Finance Corporation and the presiding judge of the trial court. The heirs ask the Supreme Court to annul the trial court's refusal to dismiss a money claim against their deceased mother and to command that court to dismiss it. The case matters because it fixes a bright-line rule: the death of a defendant in a pure money claim before final judgment ousts the ordinary court of jurisdiction, and a preliminary attachment already levied does not save the action. It is the classic bar examination vehicle for the interplay between the rule on non-survival of money claims and the ancillary writ of attachment.

Procedural History

Asia Pacific Finance Corporation filed a complaint for sum of money with preliminary attachment in the then Court of First Instance of Manila against E. Francisco Liners Company, Incorporated, Elias A. Francisco, and Josephine Cruz Malolos. The trial court issued an order of attachment and a writ of preliminary attachment, and the levy was annotated on the residential property of Malolos in Singalong, Manila. After Malolos died, her counsel moved to dismiss the complaint as against her under Section 21 of Rule 3 of the Rules of Court. The trial court, through the respondent judge, denied the motion in a resolution dated August 29, 1980. The heirs then filed this petition for certiorari and mandamus in the Supreme Court. The Court gave due course to the petition, treated the comment as an answer, required memoranda, and eventually submitted the case for deliberation.

Facts

On April 16, 1979, Asia Pacific Finance Corporation, a quasi-banking institution partly engaged in discounting receivables, purchased from E. Francisco Liners Company, Incorporated a postdated Far East Bank and Trust Company check numbered 214070 in the amount of 105,000 pesos. The check had been issued in favor of Francisco Liners by Josephine Cruz Malolos, and it carried a maturity date of May 30, 1979. On purchase, Francisco Liners executed a deed of assignment of the check and, as payee, endorsed it in favor of the finance corporation before receiving the discounted proceeds.

When the check was deposited on its maturity date, it was dishonored because the drawer's bank account had already been closed. The finance corporation demanded payment from Francisco Liners and from Malolos as drawer, but the obligation remained unpaid. On August 15, 1979, the finance corporation filed a complaint for sum of money with preliminary attachment against Francisco Liners, its president Elias A. Francisco, and Malolos as drawer of the check. On August 23, 1979, the trial court issued an order of attachment on the grounds that the defendants were guilty of fraud in contracting the obligation and had removed or disposed of their property, or were about to do so, with intent to defraud creditors, and that the plaintiff held no tangible or valuable security. A writ of preliminary attachment followed, and the levy was annotated on Malolos's residential property covered by a transfer certificate of title.

Josephine Cruz Malolos died on April 27, 1980. On July 10, 1980, her counsel filed a motion to dismiss the complaint as against her under Section 21 of Rule 3 of the Rules of Court. The finance corporation opposed the motion, conceding that the action was for recovery of money and did not survive, but arguing that the attachment placed the case among the exceptions to the rule. The trial court agreed with the finance corporation and denied the motion, prompting this petition.

Issues

• Whether or not an attachment levied on some properties of the defendant constitutes an exception to the general rule of non-survival of a money claim under Section 21 of Rule 3 of the Rules of Court.
• Whether or not the trial court acted with grave abuse of discretion in refusing to dismiss the money claim against the deceased defendant.

Applicable Provisions

Section 21 of Rule 3 of the Rules of Court provides:

Section 21. Where claim does not survive. — When the action is for recovery of money, debt or interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in these rules.

This is the provision the Court construes and applies; it is the textual basis for the dismissal of the money claim against the deceased defendant.

Ruling

On the first issue, the Court ruled that the petition is impressed with merit. There is no question that the action below is for collection or recovery of money, and it is a settled rule that such an action does not survive the death of the defendant. The Court quoted the governing text:

Section 21. Where claim does not survive. — When the action is for recovery of money, debt or interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in these rules.

The Court stressed that the language is too clear to require interpretation, and that the claim must instead be prosecuted in the manner specially provided by the rules, meaning the settlement of the estate. The Court explained the reason for the rule: upon the death of the defendant, a testate or intestate proceeding must be instituted in the proper court, where all creditors must appear and file their claims, to be paid proportionately out of the property left by the deceased. The purpose is to avoid useless duplicity of procedure, so that the ordinary action is wiped out from the ordinary court.

The Court rejected the reliance on Macondray versus Dungao. In that case the promissory note represented the purchase price of vehicles bought on installment, the attachment was later dissolved upon the filing of a surety bond, and the note was secured by a mortgage on personal property such that the proper action should have been foreclosure of mortgage. Here, the money claim arose out of a pure and simple debt. The Court held that a writ of attachment is a remedy ancillary to the principal proceedings. Consequently, if it is mandatory that the principal action be dismissed for non-survival of the money claim, the purpose of the attachment, which is to secure the outcome of the trial, no longer exists, and neither do the reasons for the issuance of the writ insofar as the deceased debtor is concerned.

On the second issue, the Court held that a court order which violates the Rules constitutes grave abuse of discretion, because it wrecks the orderly procedure prescribed for the settlement of claims against deceased persons, designed to protect the interests of the creditors of the decedent. Allowing the finance corporation to attach the heirs' properties for the benefit of its claim against the estate would give it an undue advantage over other creditors. The Court therefore concluded that a writ of attachment already issued in connection with a money claim which must be dismissed because of the death of the defendant before final judgment cannot provide an exception to the general rule, and must accordingly be dissolved.

Doctrine

An action for recovery of money, debt, or interest thereon does not survive the death of the defendant who dies before final judgment in the Court of First Instance; the action must be dismissed and the claim prosecuted in the settlement of the estate under Section 21 of Rule 3 of the Rules of Court. The rule is mandatory and confers no jurisdiction on the ordinary court to continue the action. A writ of preliminary attachment is merely ancillary to the principal action; it cannot supply an exception to the rule, and it must be dissolved once the principal action is dismissed for non-survival. A court order that violates this rule amounts to grave abuse of discretion, because it defeats the orderly settlement of claims against a decedent and gives the attaching creditor an undue preference over other creditors of the estate.

Disposition

The Supreme Court set aside the trial court's resolution, issued the writ of mandamus commanding the trial court to dismiss the civil case insofar as the heirs of Josephine Cruz Malolos are concerned, without prejudice to the filing of the claim in the estate proceedings, and directed the Register of Deeds of Manila to cancel the notice of levy on the subject properties.

Remember This

Memorize the line: a money claim does not survive the defendant's death, and a preliminary attachment, being merely ancillary, cannot resurrect it. Examiners use this case to test the mandatory character of Section 21 of Rule 3 and the ancillary nature of the writ of attachment.