ChanRobles Virtual law Library

[ G.R. No. 80546-48. August 11, 1999]

GSIS, petitioner vs. CA, respondents.

THIRD DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated AUG. 11, 1999.

G.R. No. 80546-48 (Government Service Insurance System, Victor S. Buenavides, Daniel N. Mejares, Alberto M. Rodriguez, Romeo G. Monteclaro, Arnaldo C. Cuasay, in their own behalf and in behalf of the GSIS employees who are members and doing business under the name and style of GSS provident fund, petitioner vs. Court of Appeals, Judge Regino Veridiano II, presiding judge, branch XXXI of Manila Regional Trial Court, Jaleco Development, Inc., Roger Brown, the Sheriff and Deputy Sheriff Ramon Enriquez of the City of Manila and/or Deputy and the Register of Deeds of Makati, respondents.)

This is a petition for review under Rule 45 of the Revised Rules of Court assailing the decision of the Court of Appeals1 [Sixth Division, penned by Associate Justice Alfredo Mariogomen with Associate Justice Santiago Kapunan and Associate Justice Reynato Puno as members] dated August 31, 1987 and its resolution dated November 4, 1987 which dismissed the petition for certiorari and prohibition and affirmed the order of the Regional Trial Court which lifted the levy on the attached properties of Jaleco Development, Inc. and Roger Brown. Petitioner Government Service Insurance System (GSIS) Provident Fund also prays for the issuance of a writ of preliminary injunction and/or a temporary restraining order to enjoin respondents from enforcing the aforesaid decision and releasing the subject properties.

The antecedent facts leading to the filing of the petition are as follows:

Fortune Motors (Phils.) and Forte Merchant Finance, Inc. through their President Joseph Chua and Director Ador Cruz, procured a loan and market placements from the Government Service Insurance System (GSIS) Provident Fund for which were issued several promissory notes secured by several postdated checks to guarantee payment thereof by private respondents.

Upon maturity of the said promissory notes, the GSIS Provident Fund verbally demanded payment of the same Forte Merchant Finance, Inc. and Fortune Motors (Phils.) but the same was not heeded. The postdated checks issued to guarantee payment were also refused payment by the drawee bank for insufficiency of funds. Despite a formal letter of the demand from petitioner, the two corporations still failed to pay, thus prompting GSIS Provident Fund to file several complaints with the Regional Trial Court of manila.

Filed on June 11, 1989, the first complaint was for a sum of money with a payer for a writ of preliminary attachment against Forte Merchant Finance, Inc., Fortune Motors (Phils.), Joseph Chua, and Ador Cruz, docketed as Civil Case No. 84-24915 before the Regional Trial Court of Manila, Branch XXXI.

On June 14, 1984, the trial court issued an order of attachment as prayed for in the complaint and the corresponding writ of attachment issued on June 15, 1984 against the said defendants.

The following day, June 16, 1984, Deputy Sheriff Ramon G. Enriquez, assisted by Deputy Sheriff Carmelo Cachelo, effected service of the writ and levied on the properties of Joseph Chua situated at No. 4893 Pasay Road, Dasmariñas Village, Makati City. It turned out, however, that the said properties were registered in the name of Jaleco Development, Inc. which, at that time, was not a party in Civil Case No. 84-24915. One of the cars levied, a Mercedes Benz, was likewise found to be registered in the name of the herein respondent, Roger Brown.

On July 18, 1984, petitioner filed an amended complaint, impleading Jaleco Development, Inc. with a motion to amend the writ of attachment to include the said corporation.

In an order Dated August 10, 1984, the amended complaint was admitted and the writ of attachment accordingly amended and, on August 14, 1984, Sheriff Enriquez levied upon the real property of Jaleco Development, Inc. covered by Transfer Certificate of Title No. 126573.

The second complaint was also a sum of money, docketed as Civil Case No. 84-25072 before Branch XI of the Regional Trial Court of Manila. The original defendants were Fortune Motors (Phils.), Joseph Chua and Ador Cruz. On June 26, 1994, a writ of attachment was also issued in the case.

On July 20, 1984, petitioner amended the complaint to include Jaleco Development, Inc. and accordingly, the writ of attachment was amended and real and personal properties of Jaleco Development, Inc. were attached on July 24, 1984.

Jaleco Development, Inc. moved to dissolve the said amended order of attachment and lift levy on July 31, 1984, which was opposed by petitioners. While the said incident was pending resolution before branch XI, RTC-Manila, defendants therein filed a motion to consolidate the said case with the earlier Civil Case No. 84-24915 before Branch XXXI, which motion was granted.

On July 31, 1984, a third complaint was file, docketed as Civil Case No. 84-25827 and originally raffled to Branch XI but was consolidated later with the two other cases pending before Branch XXXI. The defendants therein were forte Merchant Finance, Inc., Fortune Motors (Phils.), Joseph Chua, Ador Cruz, Jose Alcantara, and Jaleco Development, Inc.

On August 4, 1984, an order of attachment was also issued in Civil Case No. 84-25827 and on August 6, 1984 was served on the real and personal properties of defendant Jaleco Development, Inc.

On July 29, 1986, Branch XXXI of the Manila Regional Trial Court, before which the three cases were consolidated, issued an Order ruling thus:

"WHEREFORE, the levies against Jaleco Development, Inc. and/or Roger Brown in the above-entitled case, are hereby lifted, discharged and ordered set aside.

SO ORDERED."

Petitioner presented a motion for reconsideration of the said Order but the same was denied on October 3, 1986.

On November 4, 1986, a petition for certiorari and prohibition was filed by petitioner GSIS Provident Fund with the Court of Appeals. However, the same was dismissed on August 31, 1987. The motion for reconsideration of the said dismissal was denied on November 4, 1987.

Hence, the present petition, theorizing that the Court of Appeals erred when it ruled, that:

1. RESPONDENT JUDGE DID NOT ABUSE HIS DISCRETION WHEN HE RENDERED THE ORDERS OF JULY 29 AND OCTOBER 3, 1986.

2. SEC. 31 OF THE CORPORATION CODE IS UNAPPLICABLE AT THE PRESENT STAGE OF THE PROCCEDINGS;

3. REMEDY OF ATTACHMENT IS NOT AVAILABLE AGAINST JALECO DEVELOPMENT, INC. AND ROGER BROWN;

4. THE LISTING BY THE SHERIFF OF THE MOVABLES AS COPIED FROM ANOTHER LIST DOES NOT CONSTITUTE A VALID LEVY;

5. THE RESPONDENT JUDGE IS CORRECT IN ISSUING THE ORDER OF JULY 29, 1986 WHICH LIFTED THE ORDER OF ATTACHMENT; and

6. ASSUMING THAT THE DISPUTED ORDERS AREERRONEOUS, THE ERROR CAN BE CLASSIFIED AS AN ERROR OF JUDGMENT AND NOT AN ERROR O JURISDICTION, CONSEQUENTLY THE REMEDY OF CERTIORARI IS NOT AVAILABLE.

Before delving into the merits of the case, it is worthy to note that the petition is improperly captioned as a petition for certiorari under Rule 65 when it should be more appropriately designated as a petition for review under 45. Nevertheless, in the interest of justice, as this Court has time and again given due course to petitions for review incorrectly denominated as petition for certiorari under Rule 65, this case should be entertained and passed upon on its merits.

Petitioner GSIS contends that the levy made by the sheriff on the pieces of property of respondent Jaleco Development, Inc. is valid since it s a family corporation and majority of the stocks thereof belong to Joseph Chua, one of the defendants in all the three cases. Petitioner, therefor submits that it is proper to pierce the veil of corporate fiction and hold the properties of Jaleco Development, which committed an illegal act by allowing Joseph Chua to use it to defraud his creditors.

The contention is untenable.

A writ of preliminary attachment is a provisional remedy issued upon order of the court where an action is pending, to be levied upon the property or properties of the defendant as security for the satisfaction of the judgment which might be secured by the plaintiff or attaching creditor against the defendant.2 [Adlawan vs. Tomol, 184 SCRA 31.] The provisional remedy of attachment is available to prevent the defendant from disposing of his property during the pendency of the case to evade or elude judgment in favor of the plaintiff or creditor.

It is well-settled that only the properties belonging to the defendant may be attached. The levy by the sheriff of a property by virtue of a writ of attachment may b econsidered as made under the authority of the court only when the property levied upon belongs to the defendant.3 [Estonina vs. Court of Appeals, 266 SCRA 627; Manliguez vs. Court of Appeals, 232 SCRA 427; Arellano vs. Flojo, 238 SCRA 72.] Attachment and sale of properties belonging to a third person is void because such properties cannot be attached and sold at public auction for the purpose of enforcing a judgment against the judgment debtor.4 [Uy, Jr. vs. Court of Appeals, 191 SCRA 275.]

It should be noted that in the cases under consideration, all three companies were filed against Joseph Chua as President of Fortune Motors (Phils.) and Forte Merchant Finance, Inc. on the basis of the promissory notes issued in favor of petitioner GSIS, which promissory notes were all in the name of Forte Merchant Finance and Fortune Motors (Phils.). Jaleco Development, Inc. was never a party to subject transaction between the petitioner and the two corporations in whose behalf Joseph Chua incurred the indebtedness and issued the promissory notes. I fact, the original complaints did not include Jaleco Development, Inc. as a party defendant. As can be gleaned from the records, when the order of attachment was issued on June 14, 1984 and when it was effected by sheriff Enriquez on June 16, 1984, the private respondents, Jaleco Development, Inc. and Roger Brown, were not yet parties in any of the three cases. It is likewise undeniable that the properties levied upon by the sheriff do not belong to either Joseph Chua, Forte Merchant, Inc. or Fortune Motors (Phils.) but were in fact registered in the name of Jaleco Development, Inc. and the Mercedes Benz car levied upon belongs to the herein private respondent, Roger Brown. Consequently, there can be no valid attachment on the said properties which have been adequately established as not belonging to any of the defendants but are properties owned by Jaleco Development, Inc. and Roger Brown.

While it is true that Jaleco Development, Inc. was later impleaded in the amended complaints, at the time that the first order of attachment was issued, the said corporation was not yet impleaded as a party-defendant. In the case of respondent Roger Brown, he is not a party in any of the three cases.

The unlimited power of trial cours to issue a writ of attachment upon the commencement of the action even before it acquires jurisdiction over the person of the defedant has been upheld but this Court has stressed that the enforcement of a writ of attachment can only be validly done after the trial court shall have acquired such jurisdiction.5 [H. B. Zachary Company International vs. Court of Appeals, 232 SCRA 329] A writ of attachment cannot ve validly enforced until and unless preceded or contemporaneousy accompanied by service of summons.6 [Oñate vs. Abrogar, 230 SCRA 181]

Once the implementation of the writ commences, it is required that the court must have acquired jurisdiction over the defendant for without such jurisdiction, the court has no power and authority to act in any manner against the defendant.7 [Cuartero vs. Court of Appeals, 212 SCRA 260]

To authorize attachment of property even before jurisdiction over the person of the defendant is acquired through the service of summons or his voluntary appearance is violative of the fundamental principle of due process. In the case under scrutiny, when the first Order of Attachment was implemented by the Sheriff on June 16, 1984 against the properties of Jaleco Development and Roger Brown, the Regional Trial Court which issued the writ had not yet acquired jurisdiction over them. Thus, the attachment was nullified as correctly held by the Court of Appeals.

To justify tha attachment of Jaleco's properties, petitioner alleges thatJAleco Development, Inc. is a family corporation owned by Joseph Chua; that at the time it was incorporated on October 28, 1982, eight thousand (8,000) out of its 12, 500subscribed shares of stock were held by Joseph Chua, his wife and children; that thereafter, Chua, in exchange for 12, 000 more shares of stock of Jaleco, transferred his properties in Dasmariñas Village, Makati City, thus resulting in his holding a total of 20,000 shares of stocks or 81.64% of the entire stocks of Jaleco Development, Inc. Petitioner argies that since defendant Chua owns the majority of Jaleco's stocks, it was proper to pierce the corporate veil of Jaleco Development, Inc.

But, first and foremost, petitioner failed to show that defendant Joseph Chua is a majority stockholder of Jaleco Development, Inc. As a matter of fact, evidence showed that Chua no longer holds any stocks of Jaleco. The evidence adduced by respondent Jaleco has proven that as of January 6, 1984, Joseph Chua was no longer on the official list of stockholders of record of Jaleco Development, Inc. per the records of the Securities and Exchange Commission (SEC). However, his children, Andrew and Cynthia Chua, each holds 2,000 shares of stocks or a total of 4,000 shares which is only 16.3% of the total issued shares of Jaleco. There is thus no thruth to the allegation of petitioners that Joseph Chua is a mojority stockholder of Jaleco Development, Inc.

Secondly, assuming arguendo that he is, Jaleco Development, Inc. as a corporation has a juridical personality separate and distinct from its members of stockholders. Its corporate properties cannot therefore answer for the personal liability of its stockholders. Even assuming for the sake of argument that Chua owns majority of the stocks of Jaleco, the properties of Jaleco Development still cannot be made to answer for his liabilty because the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.8 [Asionics Philippines, Inc. vs. National Labor Relations Commissions, 290 SCRA 164; Traders Rotal Bank vs. Court of Appeals, 269 SCRA 15]

With regard to the issue on the applicability of Section 31 of the Code, petitioner GSIS avers that Joseph Chua as president of Fortune Motors and Forte Marchant Finace should be held jointly and severally liable in accordance with Section 31 of the Corporation Code. The said section provides:

Section 31. Liability of directors, trustees or officers - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a diability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation."

It is claimed that when Chua issued the promissory notes and signed the checks sued upon, he signed in his capacity As President of the two corporations and as such, agreed to be jointly and severally liable to the petitioner in case of default in the payment of its obligations.

Again, the contentions is untenable. The general rule is that obligations incurred by the corporation acting through its directors, officers and employees, are its sole liabilities.9 [Uichico vs. National Labor Relations Commissions, 273 SCRA 35; Equitable Banking Corporation vs. National Labor Relations Commission, 273 SCRA 352] Although a corporation has a separate and distinct juridical personality, it must of necessity act through its officers or directors. Chua signed the promissory notes in his capacity as president of the two corporations. The mere fact that he was a signatory to the said promissory notes did not automatically attach liability to him. Under the aforementioned section, an officer or a director may only be held jointly liable with the corporation if he a) wilfully or knowingly vote or assent to patently unlawful acts; (b) is guilty of gross negligence or bad faith in directing the affairs of the corporation; or (c) acquire any personal or pecuniary interest in conflict with his duty as such directors or trustees. In the absence of proof of any of the aforestated circumstances, th officer or director cannot be held jointly liable. Petitioner failed to alleged and prove any of the foregoing circumstances. There was no showing that defendan Chua was guilty of bad faith or gross negligence, or that he knowingly or willingly voted for or assented to a patently unlawful act, or that he acquired any personal or pecuniary interest in conflict with his duty. As correctly pointed out by the Court of Appeals in its assailed decision, in the absence of such proof, it must be presumed that Chua as president of the two corporations" performed his duties in good faith and with the diligence, care and skill which ordinarily prudent men would exercise under similar sircumstances in their personal business affairs."10 [Rollo, p. 31.] Therefore, he cannot be held jointly liable for the corporations' indebtedness to petitioner which was incurres by the corporations and signed by Chua as president thereof in the ordinary course of business.

As to the issueof whether the listing by the sheriff of the movables as copied from another list constitutes a valid levy, the court rules in the negative. The factual findings by the Court of Appeals stand, to wit:

"MTC Judge Fernando G. Gorospe of Quezon City who happened to be in the premises of the Jaleco Development, Inc. on June 16, 1984 to pick up with his wife Eleanor Gorospe who is the corporate secretary of the defendant Jaleco, pointed to Deputy Sheriff Ramon Enriquez the fact that at the time of the levy, Jaleco Development, Inc. are the owners of the properties as shown by Transfer Certifiacte of Title Nos. 52808 registered in the name of Jaleco Development, Inc. and that the two (2) motor vehicles found in the premises do not belong to Jaleco Development, Inc., as the Mercedes Benz was registered in the name of Roger Brown as per LTC Certificate of Registration of the motor vehicle and that the properties contained in the premises, both real and personal are the properties of Jaleco Development, Inc. as per Contract of Lease dated October 24, 1983 as evidence by a list of furnitures, household appliances and other equipments. At this stage, the Deputy Sheriff Ramon Enriquez copied from the list of properties supplied by Judge Fernando Gorospe and which was the basis of the said Deputy Sheriff to make the levy in enforcing the Order of Attachment. In other words, Deputy Sheriff Ramon Enriquez did not take possession of the listed items under levy or posted guards in the permises and this fact is admitted by the testmony of accompanying Deputy Sheriff Carmelo V. Cachero."11 [Rollo, pp. 27-28]

Section 7, Rule 57 of the Revised Rules of Court12 [Sec 7. Attachment of real and personal property; recording thereof. - Real and personal property shall be attached by the sheriff executing the writ in the following manner:

(a) Real property, or growing crops thereon, or nay interest, standing upon the records of the registry of deeds of the province in the name of the party against whom attachment is issued, or not appearing at all upon such records, or belonging to the party against whom attachment is issued and held by any other person, or standing on the records of the registry of deeds in the name of any other person, by filing with the registry of deeds a copy of the order, together with a description of the property attached, and a notice that is attached, or that such real property and any interest therein held by or standing in the name of such other person are attached, and by leaving a copy ofsuch oredr, description, and notice with the occupant of the property, if any, or with such other person or his agent found within the province. Where the property has been brought under the operation of either the Land Registration Act or the Property Registarion Decree, the Notice shall contain a reference to the number of the certificate of title , the volume and page in the registration book where the certificate is registered, and the registered owner or owners thereof.

xxx xxx xxx

(b) Personal property capable of manual delivery, by taking and safely keeping it in his custody, after issuing the corresponding receipt therefor;

xxx xxx xxx] provides the manner of attaching properties, real and/or personal. Real property is attached by filing with the registry of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description and notice with the occupant of the property, if any or with such other person or his agent if found within the province. Personal property, on the other hand, when it is in the sheriff's custody, after issuing the corresponding receipt therefor. Thus, the case under consideration falls short of the requirements of the Rules. It was not sufficient for the sheriff to merely copy from a list the movables to ve attached. What constitutes a valid levy of personal properties is the sheriff's actual taking and safekeeping of such properties.13 National Bureau of Investigation vs. Tulia, 270 SCRA 351 citing Walker vs. McMiking, 14 Phil. 668, 67313 The sheriff is requires to take actual possession and hold the attached properties for safekeeping. Even for this reason alone, the attachment must be nullified.

Finally, the order appealed from (the order lifting the attachment) is merely interlocutory and therefore generally not appealable except through certiorari on a finding of grave abuse of discretion amounting to lack or excess jurisdiction. And it is not erroneous for petitioner to assail such order before the Court of Appeals through certiorari so llong as the allegations relate to grave abuse of discretion. However, in the present case there appears no such grave abuse of discretion on the part of the respondent court in issuing the order lifting the attachment.

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO OREDERD.

Very truly yours,

(SGD.) JULIETA Y. CARREON

Clerk of Court