CaseDIGEST - Rule 57 Case 12 - Lorenzo Shipping

G.R.No.
175727, March06,2019
LORENZO SHIPPING CORPORATION, PETITIONER, v. FLORENCIOO.VILLARINAND
FIRST CARGO MASTERS CORPORATION, CEBU ARRASTRE & STEVEDORING SERVICES
CORPORATION AND GUERRERO G. DAJAO, RESPONDENTS.
G.R.No.178713, March06,2019
LORENZO SHIPPING CORPORATION, PETITIONER, v. FLORENCIOO.VILLARIN,
RESPONDENTS.
REYES, A., JR., J.:
FACTS:
- Lorenzo Shipping Corporation (LSC) is a domestic corporation which operates

interisland shipping vessels in the Philippines. On the other hand, Cebu Arrastre and
Stevedoring Services Corporation (CASSCOR) provides arrastre and stevedoring
services for LSC's ships calling at the Port of Cebu under a Cargo Handling Contract
dated March 8, 1997.
- Guerrero G. Dajao (Dajao), as President and General Manager of CASSCOR, entered

into a Memorandum of Agreement (MOA) with Serafin Cabanlit (Cabanlit) and
Florencio Villarin (Villarin). Wherein Villarin and Cabanlit undertook to operate and
manage the arrastre and stevedoring operations of CASSCOR with respect to LSC's
vessels where they are to receive their share of 73% of the payment from LSC.
- CASSCOR and Dajao however failed to remit shares of Villarin and Cabanlit, thus
they filed a Complaint for specific performance and accounting against CASSCOR and
Dajao.
- The complaint also included prayer for a writ of preliminary attachment against
CASSCOR and Dajao; and a prayer for mandatory injunction against LSC as a nominal
defendant.
- The RTC ordered the issuance of a writ preliminary attachment against all the
defendants due to the fact that they appear to be guilty of fraud in the performance
of the obligation.
- The defendants posted a counterbond. Further it ruled plaintiff has contract with the
shipping corporation in view of the fact that the defendant shipping corporation is a
beneficiary of the services of plaintiffs as alleged in the contract between plaintiffs
and other defendants. The rule on privity of contract applies.
- The CA upheld RTC’s ruling that the complaint contained averments which allege
fraud on the part of all the defendants, including LSC. As regards LSC's assertion of
the absence of privity of contract, the CA ruled that LSC is a beneficiary of the
contract between Villarin and CASSCOR; and that Section 1(d) of Rule 57 does not
require the existence of a contractual obligation. Citing Sta. Ines Melale Forest
Products Corporation v. Macaraig,31 the CA noted that Section 1(d) also
contemplates other sources of obligation, such as law, crime, or quasi-delict,
without stating the precise nature of the obligation involved in the case at bar. The
CA further held that the admission cited by LSC in its petition was not an admission
of the absence of privity of contract between LSC and Villarin but is instead an
admission by Villarin that LSC has payables to FCC.
- LSC sought reconsideration of the decision but was denied by the CA in its
Resolution32 dated July 6, 2007. LSC thus filed a petition for review
on certiorari33 with this Court, docketed as G.R. No. 178713.
ISSUE:
W/N CA Seriously Erred In Affirming The Order Of The Court A Quo In Extending The Writ Of
Preliminary Attachment As To Include LSC, Which Was Merely Described As A Nominal
Defendant, By Charging It As Guilty Of Fraud In Contracting The Obligation, When The
Application For The Writ Of Preliminary Attachment Was Only Directed To Co-Defendants
CASSCOR And Dajao.
RULING:
a. The Order dated June 16, 2004 issued by Judge Anacleto Caminade in Civil Case No.
CEB-25283; and the writ of attachment issued thereunder, are
hereby ANNULLED and SET ASIDE insofar as it pertains to petitioner Lorenzo
Shipping Corporation
b. Supreme court does not agree in in upholding the trial court's order in favor of
Villarin, et al., ruled that all the defendants, including LSC, are guilty of fraud in the
performance of their obligation.
c. The courts a quo anchored the issuance the writ of preliminary attachment prayed
for on Sections 1(b) and 1(d) of Rule 57 of the Rules of Court, which state:
1. SEC. 1. Grounds upon which attachment may issue. - At the commencement

of the action or at any time before entry of judgment, a plaintiff or any
proper party may have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered in the
following cases: x x x
(b) In an action for money or property embezzled or fraudulently misapplied

or converted to his own use by a public officer, or an officer of a corporation,
or an attorney, factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a fiduciary capacity, or for a
willful violation of duty;
(d) In an action against a party who has been guilty of a fraud in contracting
the debt or incurring the obligation upon which the action is brought, or in
the performance thereof;
However, the Supreme Court decided against based on the tested jurisprudential
standards:
1. Ng Wee v. Tankiansee,39 the Court, interpreting Section 1(d), ruled that:
To sustain an attachment [under this section], it must be shown that the debtor in
contracting the debt or incurring the obligation intended to defraud the
creditor. The fraud must relate to the execution of the agreement and must have
been the reason which induced the other party into giving consent which he would
not have otherwise given. To constitute a ground for attachment in Section 1 (d),
Rule 57 of the Rules of Court, fraud should be committed upon contracting the
obligation sued upon. A debt is fraudulently contracted if at the time of contracting
it the debtor has a preconceived plan or intention not to pay, as it is in this case.
Fraud is a state of mind and need not be proved by direct evidence but may be
inferred from the circumstances attendant in each case.
2. Watercraft Venture Corporation v. Wolfe.

The Court, speaking through Associate Justice Antonio Eduardo B. Nachura,
reiterated the long-standing doctrine that "[t]he provisional remedy of preliminary
attachment is harsh and rigorous for it exposes the debtor to humiliation and
annoyance. The rules governing its issuance are, therefore, strictly construed against
the applicant, such that if the requisites for its grant are not shown to be all present,
the court shall refrain from issuing it, for, otherwise, the court which issues it acts in
excess of its jurisdiction."
d. Furthermore, the MOA was entered into by Dajao (as CASSCOR President) on one
hand, and Villarin, et al. on the other. LSC cannot be guilty of fraud within the
contemplation of Section 1(d), Rule 57 of the Rules of Court because it did not enter
into any agreement or contract with Villarin. Pertinently, Article 1311 of the New
Civil Code provides that "[c]ontracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of
law." In the absence of any assignment of rights to LSC, the MOA can only bind the
parties thereto. Not being a party to the MOA, LSC cannot be subjected to an
attachment writ on the basis of Section1(d).
e. Additionally, the Court cannot sustain the finding a quo that constructive trust
relation obtains in this case. LSC has a legal justification for refusing to yield to
Villarin's demands, based on the law on privity of contract. Thus, it cannot be said
that LSC is withholding payment for fraudulent reasons. Nevertheless, assuming
without conceding that a constructive trust relation does exist in this case, it has
already been held in Philippine National Bank v. CA46 that, "in a constructive trust,
there is neither a promise nor any fiduciary relation to speak of and the so-called
trustee neither accepts any trust nor intends holding the property for the
beneficiary."47 This takes the case out of the purview of Section l(b), since there
would be no fiduciary relation between LSC and Villarin.
f. The Court then held that the term "creditors" as used in Rule 57 should be
construed broadly to contemplate all classes of creditors regardless of the source of
obligation. In other words, a juridical tie is still required, which is not present in the
case at bar between Villarin and LSC. LSC's refusal to directly remit its payables to
Villarin cannot be considered wrongful, because LSC contracted only with CASSCOR
and not with Villarin; and such refusal is justified by the legal principle of privity of
contract.

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G.R.No.

REYES, A., JR., J.:

- Lorenzo Shipping Corporation (LSC) is a domestic corporation which operates

- Guerrero G. Dajao (Dajao), as President and General Manager of CASSCOR, entered

1. SEC. 1. Grounds upon which attachment may issue. - At the commencement

(b) In an action for money or property embezzled or fraudulently misapplied

2. Watercraft Venture Corporation v. Wolfe.

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