G.R. No.

L-23237 November 14, 1925

WALTER E. OLSEN & CO., plaintiff-appellee, vs. WALTER E. OLSEN, defendant-appellant.

FACTS:

Defendant-appellant was president-treasurer and general manager of the plaintiff-appellee corporation and exercised direct and
almost exclusive supervision over its function, funds and books of account until about the month of August, 1921. During that
time he has been taking money of the corporation without being duly authorized to do so either by the board of directors or by
the by-laws, the money taken by him having amounted to the considerable sum of P66,207.62. Of this sum, P19,000 was
invested in the purchase of the house and lot now under attachment in this case, and P50,000 in the purchase of 500 shares of
stock of Prising at the price of P100 per share for himself and Marker. A few days afterwards he began to sell the ordinary
shares of the corporation for P430 each. The defendant-appellant attempted to justify his conduct, alleging that the withdrawal of
the funds of the corporation for his personal use was made in his current account with said corporation, in whose treasury he
deposited his own money and the certificates of title of his shares, as well as of his estate, and that at the first meeting of the
stockholders, which took place on February 1, 1919, a statement of his account with a debit balance was submitted and
approved.

ISSUES:

Whether or not an order denying a motion for the annulment of a preliminary attachment may be reviewed through an appeal.

Whether or not the trial court committed error in denying the motion for the annulment of the preliminary attachment levied upon
the property of the defendant-appellant.

HELD:

An order denying a motion for the annulment of a preliminary attachment may be reviewed in an appeal taken from a final
judgment rendered in the principal case, in which said order was entered as an auxiliary remedy.

The preliminary attachment is an auxiliary remedy the granting of which lies within the sound discretion of the judge taking
cognizance of the principal case upon whose existence it depends. The order of the judge denying a motion for the annulment of
a writ of preliminary attachment, being of an incidental or interlocutory and auxiliary character, cannot be the subject of an
appeal independently from the principal case, because our procedural law now in force authorizes an appeal only from a final
judgement which gives an end to the litigation.

The conduct of the defendant-appellant in connection with the funds of the corporation he represented was more than an
irregularity; and while it is not sufficiently serious to constitute a criminal fraud, it is undoubtedly a fraud of a civil character,
because it is an abuse of confidence to the damage of the corporation and its stockholders, and constitutes one of the grounds
enumerated in section 424, in connection with section 412, of the Code of Civil Procedure for the issuance of a preliminary
attachment, and the order of the Court of First Instance of Manila, denying the motion for the annulment of the injunction in
question, is in accordance with law.

G.R. No. 164510 November 25, 2005

SPOUSES SANTIAGO and RUFINA TANCHAN, petitioners vs. ALLIED BANKING CORPORATION, respondent.

FACTS:

For value received, Cebu Foremost Construction, Inc. (Foremost), through its Chairman and President Henry Tanchan (Henry)
and his spouse, Vice-President and Treasurer Ma. Julie Ann Tanchan (Ma. Julie Ann) executed and delivered to Allied Banking
Corporation 7 US$ promissory notes, US$379,000.00, at 9.50% interest rate per annum. Foremost also issued to respondent
several Philippine peso promissory notes covering various loans in the aggregate amount of Php28,900,000.00, at an interest
rate of 14.5% per annum. All the foregoing promissory notes are secured by two Continuing Guaranty/ Comprehensive Surety
Agreements (CG/CSA) executed in the personal capacities of spouses Henry and Ma. Julie Ann (Spouses Tanchan) and
Henry's brother, herein petitioner Santiago Tanchan (Santiago),for himself and as attorney-in-fact of his wife and co-petitioner
Rufina Tanchan (Rufina) under a Special Power of Attorney. On August 3, 1998, respondent instituted the extra-judicial
foreclosure of the real estate mortgage to satisfy its claim against Foremost in the aggregate "amount of Php55,578,826.77,
inclusive of interest, other charges and attorney's fees, equivalent to 10% of the total amount due as of May 3, 1998, plus the

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costs and expenses of foreclosure."17At the public auction sale, respondent's bid of only Php37,745,283.67 for all the mortgaged
properties, including the buildings and improvements thereon,18 was adjudged the sole and highest bid.

On October 13, 1998, respondent filed with the RTC a Complaint for Collection of Sum of Money with Petition for Issuance of
Writ of Preliminary Injunction against Foremost, Spouses Tanchan and herein petitioners, praying that they be ordered to pay,
jointly and severally. In support of its application for issuance of a writ of preliminary attachment, respondent submitted an
Affidavit executed by Elmer Elumbaring (Elumbaring), Branch Cashier/Loans Supervisor, Cebu, Jakosalem Branch, stating that:
Defendants [Foremost, et al.] committed fraud in contracting the obligations upon which the action is brought. Thus, armed with
a writ of attachment,22 the sheriff levied several parcels of land registered in the name of Foremost, et al.23

Foremost, et al. acknowledged the authenticity and due execution of the promissory notes but denied liability for the amounts
alleged in the Complaint, the computation of which they dispute due to the arbitrariness of the imposition of new interest rates.
The issuance of the writ of preliminary attachment was objected to by Foremost on the ground that it contracted the loans in
good faith but was prevented from paying the same only because of the economic crisis that beset the country. On the part of
Spouses Tanchan and herein petitioners, they claim that they had no personal participation or influence in the loan transactions
except to ensure its payment; hence, they could not have practiced fraud upon respondent because they did not personally
contract the loans with it.27

ISSUE:
Whether or not the petitioners as mere sureties of the loans obtained by Cebu Foremost Construction, Inc. were guilty of fraud in
incurring the obligations so that a writ of preliminary attachment may be issued against them?

HELD:
The issues involve the validity of the writ of preliminary attachment as against the properties of petitioners only, but not as
against the properties of Foremost and Spouses Tanchan, neither of whom appealed before the Court. The discussion that
follows, therefore, shall pertain only to the effect of the writ on petitioners.

One of the grounds cited by the CA in refusing to discharge the writ of attachment is that "it is now too late for [petitioners] to
question the validity of the writ" because they waited three long years to have it lifted or discharged.46

Under Section 13, Rule 57 of the Rules of Court, a party whose property has been ordered attached may file a motion "with the
court in which the action is pending" for the discharge of the attachment on the ground that it has been improperly issued or
enforced. In addition, said party may file, under Section 20, Rule 57, a claim for damages on account of improper attachment
within the following periods:
Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for damages on account
of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected or before the
judgment becomes executory, with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing
his right to damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in
the judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim
damages sustained during the pendency of the appeal by filing an application in the appellate court with notice to the party in
whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate court becomes executory.
The appellate court may allow the application to be heard and decided by the trial court.47 (Emphasis supplied)

Records reveal that the RTC issued the writ of preliminary attachment on November 3, 1998,48 and as early as March 23, 1999,
in their Amended Answer with Counterclaim, petitioners already sought the discharge of the writ. 49 Moreover, after the RTC
rendered its Decision on August 3, 2001 but before appeal therefrom was perfected, petitioners filed on August 23, 2001 a
Motion to Lift the Writ of Preliminary Attachment, reiterating their objection to the writ and seeking payment of damages for its
wrongful issuance.50

Clearly, petitioners' opposition to the writ was timely.

The question now is whether petitioner has a valid reason to have the writ discharged and to claim damages.
It should be borne in mind that the questioned writ of preliminary attachment was issued by the RTC under Section 1(d), Rule 57
of the Rules of Court, to wit -
Sec. 1. Grounds upon which attachment may issue. - A plaintiff or any proper party may, at the commencement of the action or
at any time thereafter, 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 x
(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 concealing or disposing of the property for the taking, detention or conversion of which the action is
brought; x x x x.

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There must be evidence clear and convincing that the officer committed a fraud or connived with the corporation to commit a
fraud; only then may the properties of said officer, along with those of the corporation, be held under a writ of preliminary
attachment.

There is every reason to extend the foregoing rule, by analogy, to a mere surety of the defendant. A surety's involvement is
marginal to the principal agreement between the defendant and the plaintiff; hence, in order for the surety to be subject to a
proceeding for issuance of a writ of preliminary attachment, it must be shown that said surety participated in or facilitated the
fraudulent practice of the defendant, such as by offering a security solely to induce the plaintiff to enter into the agreement with
the defendant.

There is neither allegation nor innuendo in the Complaint of respondent or the Affidavit of Elumbaring that petitioners as sureties
or officers of Foremost participated in or facilitated the commission of fraud by Foremost, et al. against respondent. In fact, there
is no mention of petitioners, much less a recital of their role or influence in the execution of the loan agreements. All that is
alleged is that Foremost obtained loans from respondent but failed to pay the same, but as the Court has repeatedly held, no
fraud can be inferred from a mere failure to pay a loan. Absent such evidence of malice, the attaching party cannot be held liable
for moral damages.66

In the present case, petitioners cite the allegations made by respondent in its application for attachment as evidence of bad faith.
However, the allegations in question contain nothing but the stark truth that Foremost obtained loans and that it failed to pay.
The Court fails to see any malice in such bare allegations as would make respondent liable to petitioners for moral damages.

To recapitulate, the Court partly dissolves the writ of preliminary attachment for having wrongfully issued against the
properties of petitioners who were not shown to have committed fraud in the execution of the loan agreements
between Foremost and respondent, but declines to award moral damages to petitioners in the absence of evidence that
respondent acted with malice in causing the wrongful issuance of the writ.

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