THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), CRISOSTOMO M. DE LOS REYES, AMANTE PERALTA, NESTOR ULET AND LORENZO SAGA, PETITIONERS, VS. HON. INTERMEDIATE APPELLATE C…

This is a petition to review and set aside the Decision* of the Intermediate Appellate Court, First Civil Cases Division dated October 11, 1985, in
its AC-G.R. CV No. 01839, entitled “Amado Apostol et al. versus Crisostomo
de los Reyes, et al.”, which modified the decision rendered by the Regional Trial Court, Branch CXVI,
Pasay City and the Resolution dated January 6, 1986 which denied the Motion for Reconsideration.

Petitioner Consolidated
Bank and Trust Corporation (Solidbank) is a banking corporation duly organized
and existing under Philippine Laws, while petitioner Crisostomo de los
Reyes is its legal counsel. The other petitioners Amante Peralta, Nestor
Ulet and Lorenzo Saga were security guards employed by Solidbank. All
the petitioners were the defendants-appellants
in AC-G.R. CV No. 08139.

Respondent Nation’s Knitting Enterprises, Inc. (Knitting, for short) is a duly organized corporation under
Philippine Laws, respondent Amado Apostol (now deceased) was its General Manager, respondent Cheng Kang Tarce
was its Plant Manager and respondent Victorino Ganal was its driver.

It appears that on January 16, 1974, Knitting, Inc. through its
treasurer Kiok Lay, executed a Deed of Real Estate and Chattel Mortgage in
favor of the Consolidated Bank and Trust Corporation (Solidbank) to secure a
loan of P900,000.00. The mortgage was constituted on two
(2) parcels of land covered by T.C.T.
Nos. 18112 and 14985 and on the building and improvements existing thereon, as
well as on various types of machineries.

On April 30, 1979, Knitting again through its treasurer Kiok Lay,
executed an Amendment to the Deed of Real Estate and Chattel Mortgage to secure
additional credit facilities worth P2,500,000.00. Knitting thus obtained an additional loan of P2,500,000.00 for which
it executed three (3) promissory notes all signed by Kiok Lay. The Amendment covered the same properties described in the first
Deed of Mortgage and various types of machineries which might thereafter be
acquired by Knitting.

Letters of credit were extended to Knitting in June, 1980, September 16, 1980, August 12, 1980 and
October 3, 1980, by virtue of which Solidbank paid P1,796,768.70 to various
suppliers of Knitting on the basis of sight drafts which the suppliers
issued. Knitting took possession of the goods delivered by
the suppliers after executing trust receipts, binding itself to hold the goods covered by the
receipts in favor of Solidbank, to sell them and deliver the proceeds to
Solidbank or to return the goods to it if not sold. In addition to the Deed of Real Estate and Chattel Mortgage, Kiok
Lay and Manuel Kiok executed a continuing guaranty constituting themselves as
sureties for the payment of the loan.

Knitting defaulted in the
payment of its obligations, for which reason, Solidbank asked the sheriff to
foreclose the mortgage. The
total obligation of Knitting as of
November 1981 amounted to P4,108,831.00.

To stop and prevent the
ensuing foreclosure, Knitting, Kiok Lay and Manuel Kiok filed a petition for injunction
with the Court of First Instance of
Pasay City. The case was docketed as Civil
Case No. 9609-P and raffled to Judge
Manuel V. Romillo, Jr. They alleged
that the Deed of Real Estate and Chattel Mortgage executed on January 16, 1974
was null and void because Kiok Lay who negotiated for the loan was not author­ized
to do so, either under the Articles of Incorporation of Knitting or by its
Board of Directors; that Kiok Lay had already paid the sum of P900,000.00
from his personal funds; that Solidbank
extended the addi­tional loan of P2,500,000.00 to Kiok Lay
after the obligation secured by the first mortgage had been paid and despite
knowledge of the fact that Kiok Lay
was not authorized to enter into such contract. It was further alleged
that Kiok Lay was allegedly and maliciously made to sign the Amendment to the
Real Estate and Chattel Mortgage; that the said Deed of
Mortgage could no longer be amended because it had already been fully paid for by Kiok Lay; that because of
the false statement made under oath by Solidbank’s comptroller Corazon R.
Dayco, the Clerk of Court and the Sheriff of Pasay City were misled into
issuing a Notice of Sheriff’s Sale on November 21, 1981 which was published in
the Nuevo Horizonte issues of November
14 and 21, 1981.

On November 27, 1981,
Judge Romillo issued a temporary restrain­ing order enjoining
Solidbank from further publishing the
notice of sale and from
proceeding with the sale.

In due time, Solidbank
filed its answer. It alleged that Kiok
Lay was authorized by various resolutions of the board of directors
of Knitting to negotiate loans with Solidbank, to sign documents and other
papers in connection with such loans and particularly to mortgage corporate
assets and to sign checks. It also
claimed that Knitting benefited from the loans and therefore was estopped to
deny them. As a counter­claim, Solidbank prayed that Knitting be ordered to
pay compensatory, exemplary and/or liquidated damages as stipulated in the
promissory notes because of the filing of a baseless and frivolous
action and 10% of the amount due as attorney’s fees. In the alternative, it asked that Knitting
be ordered to pay P2,500,000.00 with
interest at the rate of 3% per
annum until the amount was fully paid and 10%
of the amount due by way of attorney’s fees; the sum of P1,796,768.78
covered by trust receipts with interest at the rate of 14% per annum plus 10%
attorney’s fees and 3% penalty agreed upon in case of litigation. Solidbank also prayed for the attachment of the properties of Knitting, as
security for the satis­faction
of its obligation on the ground that said Knitting together with Kiok Lay and
Manuel Kiok were guilty of fraud in contracting the obliga­tion and that there
was no sufficient security for Solidbank’s claims other than the properties
sought to be attached.

By virtue of Solidbank’s alternative
counterclaim, Judge Romillo in
said Civil Case No. 9609-P, issued an order of attachment on December 17, 1981. The following day December 18, 1981 a writ of preliminary
attachments was issued and upon Solidbank’s posting of a good and sufficient bond the sheriff attached the properties of Knitting.

However, on January 7,
1982, upon motion of Knitting, Judge Romillo issued the following Order:

“Pending resolution of the various inci­dents scheduled for
hearing on January 18, 1982 at 8:30 o’clock in the morning, in order that the
issues therein raised may not become moot and academic, it is
necessary that the present status
quo be maintained.

“WHEREFORE, Deputy Sheriff Umberto C. Ramos is hereby ordered to desist from
further en­forcing the writ of
preliminary attachment hereto­fore
issued, until further orders from this Court.”

The following day,
January 8, 1982, Atty. Crisostomo
M. de los Reyes, counsel of
Solidbank issued an instruction to the deputized Security
Guards in the following tenor:

“All properties levied as of date hereof remain in custodia legis but no further enforcement of the order of attachment is
allowed. With the status quo
order, all levied proper­ties
shall remain guarded by you and no release
to any party effected.”

Knitting, Amado Apostol,
Cheng Kang Tarce and Victorino Ganal
(herein private respondents) claiming
to have been damaged as a conse­quence of the enforcement of the foregoing
instruction of Atty. Crisos­tomo de los Reyes, filed on March 1, 1982, a
complaint for damages against Solidbank, Crisostomo M. de los Reyes, Amante
Peralta, Nestor Ulet and Lorenzo Zaga (herein petitioners)
with the then Court of First Instance of Rizal, Pasay City. The case was raffled to Branch XXVII (now Branch
CXVI of the Regional Trial Court) presided by Judge Dionisio N. Capistrano, and
docketed as Civil Case No. 9837-P. Among others, it is alleged in the complaint that due to the enforcement of the instruction/directive of Atty. Crisostomo
de los Reyes, Knitting was not able to ship its merchandise
to its would-be customers here and abroad causing the eventual cessation of its business
operations, loss of profits, credit, goodwill and good business reputation
resulting in damages in the amount
borne out by the evidence to be presented.

Petitioners as the then defendants filed a Motion to Dismiss on April 19, 1982, on the
following grounds: (a) pendency of
Civil Case No. 9609-P; (b) the new parties are not parties in interest; (c) the
incidents recited in the complaint should be resolved in Civil Case No. 9609-P;
(d) present action is duplicatory of plaintiffs’ application for damages upon
the attachment bond and (e) filing of the present action is unethical and
puerile.

On June 18, 1982,
petitioners filed a Supplemental Motion to Dismiss arguing that inasmuch as the
causes of action stemmed from alleged acts committed as a consequence of the
attachment proceedings, the relief therefrom can be threshed out only in Civil Case No. 9609-P, where the attachment writ was issued.

These motions were
resolved by Judge Capistrano in his Order dated April 20, 1983, “deferring resolution thereof
until after the trial on the merits.”.

On May 16, 1983, petitioners filed a Motion for Reconsideration
stressing the ruling in the Rejuso vs. Estipona case (72 SCRA 513) that whatever relief a party may get by reason of
erroneous attachment must be litigated in the same case where the
attachment writ was issued.

On May 18, 1983,
petitioners filed a motion for extension of time to file answer, praying for 15
days to file the same to be
counted from the receipt of the resolution on their motion for reconsideration.

On June 23, 1983,
Judge Capistrano issued his Resolution holding that petitioners’ motion for
reconsideration is considered as not filed and that the motion for extension to
file the answer is not entitled to any consideration
at all. Petitioners received copy of this
resolution on June 30, 1983. On July 6, 1983, petitioners filed their answer with
counterclaim.

Meanwhile, however, on
June 27, 1983, and upon motion of private respondents, Judge Capistrano declared petitioners in default and
directed the private respondents as the then plaintiffs “to present their evidence ex-parte tomorrow, June 28, 1983 at 8:30 in the
morning.” Private res­pondents thus presented their evidence ex-parte
and thereafter on August 18, 1983,
Judge Capistrano rendered his decision, the dispositive portion of which reads:

“WHEREFORE, judgment is hereby rendered ordering either of the
two defendants The Con­solidated Bank and Trust Corporation (Solidbank) or
Amante Peralta or Nestor Ulet or Nestor Saga to pay:

“A.  To plaintiff Nation’s Knitting Enter­prises, Inc.:

“1.  P726,000.00
as actual damages for one (1) year due to loss of business with Chup Son
Trading Co. of Hongkong;

“2.  P214,500.00
as actual damages for one (1) year due to loss of business with Rock-a-bye, Ltd., of England;

“3.  P3,758,872.00
as actual damages for the stocks-in-trade or finished pro­ducts or merchandise
which were not allowed to be shipped to David Trading Co., and K.P. Glory
Corporation, both of Hongkong, which products eventually rotted and/or passed out of fashion;

“4.  P3,000,000.00
as actual damages for one (1)
year for damage to and loss of credit reputation and goodwill, and forced
cessation of operations;

“B.  To plaintiff Amado Apostol, the sums of
P250,000.00 and P100,000.00 as for actual or compensatory and moral damages,
respectively;

“C.  To plaintiff Cheng Kang Tarce, the sum of
P200,000.00 as and for actual damages;

“D.  To plaintiff Victoriano Ganal, the sum of
P50,000.00 as and for actual or compensa­tory damages;

“E.  To all the plaintiffs, in the pro­portion
fixed by the preceding awards above the total sum of P1,000,000.00 as and for
exemplary or corrective damages and the further sum of P50,000.00 as and for
attorney’s fees; and

“F.  The costs of the above-entitled suit.”
(pp. 108-109, Rollo)

Petitioners appealed to
the Intermediate Appellate Court which appeal was docketed as AC-G.R. CV No.
01839, contending that the lower court erred: (a) in not dismissing the com­plaint; (b) in denying petitioners’ motion
for extension of time to file answer; (c) in declaring petitioners in default;
(d) in proceeding with the case without acting on the answer with counterclaim
filed by petitioners; and (e) in rendering judgment by default and awarding
huge amounts in the form of damages.

In its now assailed
Decision dated October 11, 1985, the Intermediate Appellate Court affirmed the
lower court’s decision with modification, as follows:

“WHEREFORE, PREMISES CONSIDERED,
the decision appealed from is hereby AFFIRMED, with modification that actual
damages in favor of Amado Apostol, Cheng Kang Tarce and Victoriano Ganal be
deleted; and moral damages awarded in their favor be reduced as follows: P50,000.00 as moral damages in favor of
Amado Apostol; P75,000.00 as moral damages in favor of Cheng Kang Tarce and
P25,000.00 as moral damages in favor of Victoriano Ganal; and exemplary damages
reduced to P250,000.00 to be paid to all the plaintiffs in the proportion of
the damages awarded to them.

“SO ORDERED.”

(p. 120, Rollo)

Substantially the Court
of Appeals ruled:

(1)   that
Solidbank erred in asking for the dismissal of the damage suit against it because the cause of action therein is different
from any prejudice that its attachment of Knitting’s properties had or could
have caused;

(2)   that
for the same reason, both cases could not have been consolidated, and assuming the propriety of consolidation, still this
was purely discretionary on the part of the court (the rule having used the
word “may”);

(3)  
that Solidbank had properly been declared in default for even
its motion for exten­sion of time to file an answer had been filed beyond the reglementary period;

(4)  
and that Solidbank was not entitled to file a motion for
reconsideration of the denial of
its motion to dismiss.

Petitioners’ motion to
reconsider the aforesaid decision having been denied, they now come before Us
through the instant petition praying that it be given due course and after
hearing judgment be rendered reversing and setting aside the assailed decision
of respondent court and that the complaint in Civil Case No. 9837-P be ordered
dismissed, or in the alternative, that this case be remanded to the court of
origin, Branch CXVI, Regional Trial Court Pasay City, for further proceedings.

The petition was given
due course in the Resolution of the Second Division dated April 28, 1986 and the private res­pondents were required
to file their answer which they did on June 23, 1986.

The grounds now relied
upon by petitioners are the same errors they assigned before the respondent
court namely ? that the lower court should have dismissed this
case because of the pendency of Civil Case No. 9609-P or that the lower court
should have consolidated this case with the said Civil Case No. 9609-P; that
the lower court erred in declaring petitioners in default and that the damages
awarded are not warranted by the evidence.

Anent the issue of
consolidation of this case with Civil Case No. 9609-P on the strength of the
doctrine laid down in the case or Rejuso vs. Estipona (72 SCRA 509) that
“any relief against such attachments could be disposed of only in that
case”, suffice it to state that this doctrine applies in the case
at bar. The damages being claimed here
are indirectly for damages resulting from the attachment because if the
attach­ment had not been made, and the Order of Judge Romillo re­garding the
“status quo” at the time that partial attachment had already been
made had not been issued, there would not have arisen the confusing and conflicting
interpretations of said order. Otherwise stated, the action of damages was essen­tially the result of
the attachment case or incident. Con­solidation, being eminently proper,
should have been done. Be it noted that
the action of private respondents here for damages because of the attachment
has already been terminated, the final judgments thereon being sufficiently
clear that the action for damages would not lie for the simple reason
that the attachment was proper. (This
is evident in G.R. No. 72053 entitled Nation’s Knitting Enterprises, Inc.; Kiok
Lay alias Ching Yu Dee and Spouse; Manuel Kiok and Spouse and Honorable Manuel V. Romillo, Jr., as Judge of the
Regional Trial Court, National Capital Judicial Region, Branch CX, Pasay City,
Petitioners, versus The Consolidated Bank and Trust Corporation (Solidbank) and
The Honorable Intermediate Appellate Court, Respondent (December 4, 1985) and
G.R. No. 68440 en­titled Nation’s Knitting Enterprises, Inc.; Kiok Lay alias
Ching Yu Dee and Spouse; and Manuel Kiok and Spouse, and Hon. Manuel V.
Romillo, Jr., in his capacity as Judge, Regional Trial Court, National Capital
Judicial Region, Br. CX, Pasay City, Petitioners versus The Consolidated
Bank and Trust Cor­poration (Solidbank) and The Intermediate Appellate Court,
Respondents (October 10, 1984) (which respectively denied review of CA-G.R. SP
No. 04915^[1] and CA-G.R. SP No. 01494^[2] and both of which had held that the
questioned attachment was proper). Surely, res judicata bars
Knitting’s complaint.

With respect to the
default judgment by the trial court, it should be emphasized that the trial
court should have already decided the case, with Solidbank’s Answer having been
taken into consideration, said Answer being already before the Court.

On the issue of damages,
We find the various awards by the respondent court completely unfair and
unwarranted.

While as pointed out by the
Court of Appeals actual damages may have been suffered by Knitting in view of
its failure to profit from certain business transactions it had been accustomed to enter into, still this
loss if it exists, is directly attributable to private respondents’ fault. For instance, they could have immediately
asked the trial court for a clearer order allegedly lifting the writ of
preliminary attachment by saying so directly and expressly, and ordering the
delivery of the properties already attached to the private respondents or
resorted to appellate tribunals on the issue of said interpretations. Then again, to mini­mize any foreseen or
unforeseen damage to it, Knitting could have tried to enter into substitute
contracts. Upon the other hand let it
be understood that the legal counsel of SOLIDBANK was correct in preventing the egress of
properties already attached since the order of Judge Romillo mandated clearly
the preservation of the “status quo”. What was the “status quo” at that time? – simply the
continued holding of properties already attached, with no additional properties to be taken into cus­tody. At any rate, if Knitting had any doubts about its meaning, it had the
duty, as the alleged prejudiced entity to ask for judicial clarification as
soon as possible.

In the light of the
environmental circumstances attend­ant in this case, the assailed decision of
the respondent Court is hereby SET ASIDE, and a new one is hereby rendered
dismissing the case filed by private respondents against peti­tioners. No costs.

SO ORDERED.

Teehankee, C.J., Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz,
Feliciano, Gancayco, Padilla, Bidin, Sarmiento,
and Cortes, JJ., concur.

Melencio-Herrera, J., on leave.

* Penned by Court of Appeals
Justice Leonor Ines Luciano (Ponente), with Justices Ramon G. Gaviola, Jr.,
Eduardo Caguioa, and Ma. Rosario Quetulio-Losa,
concurring.

^[1]
The decision was penned by Justice Fidel P. Purisima, and concurred in by
Justices Simeon M. Gopengco, Lino M. Patajo and Jose F. Racela, Jr. The Resolution on the Motion for Recon­sideration
was likewise penned and concurred in by the same Justices, except for Justice
Simeon M. Gopengco.

^[2]
The decision was penned by Justice Vicente V. Mendoza and concurred in by
Justices Serafin R. Cuevas and Luis A. Javel­lana. The Resolution on the Motion for Reconsideration was penned by
Justice Vicente V. Mendoza.