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LORENZO SHIPPING CORPORATION v. FLORENCIO O. VILLARIN

FACTS:

The case involves a dispute between plaintiffs Villarin, et al. and defendants Lorenzo Shipping Corporation (LSC) and Cebu Arrastre and Stevedoring Services Corporation (CASSCOR) regarding money held in trust. On August 12, 2005, Judge Saniel issued an Order requiring LSC to deposit the amount of Php10,297,499.59 with the Clerk of Court, to be withdrawn only with the knowledge and conformity of the parties and the approval of the court. The motion to require the deposit was concurred in, with condition, by CASSCOR.

Villarin, et al. moved for a writ of execution to enforce the Order to Deposit, while LSC filed a motion for reconsideration. On March 9, 2006, Judge Saniel issued an Order granting LSC's motion for reconsideration and denying Villarin's motion for execution. The court deemed the counterbond previously posted by LSC as sufficient to protect the interests of the plaintiffs and that the issue of LSC's liability to Villarin, et al. was still in dispute.

Villarin, et al. filed a petition for certiorari with the Court of Appeals (CA) to challenge Judge Saniel's Order granting LSC's motion for reconsideration. They argued that the Order to Deposit was authorized by Rule 135, Section 6, and that the counterbond was insufficient to protect their interests. They also claimed that a letter from LSC amounted to an admission of liability.

The CA ruled in favor of Villarin, et al., annulling and setting aside Judge Saniel's Orders and reinstating the Order to Deposit. The CA held that the counterbond was insufficient based on the Valeros letter as a judicial admission. It also upheld Villarin, et al.'s contention that the Order to Deposit was grounded in Rule 135, Section 6, and that it did not amount to a prejudgment of the case. LSC's motion for reconsideration was denied by the CA.

LSC filed a petition for review on certiorari with the Supreme Court, which was docketed as G.R. No. 175727.

This case involves two consolidated petitions filed by LSC which challenged the decision of the Court of Appeals (CA) affirming the orders of the trial court in both cases.

In G.R. No. 178713, LSC argued that the trial court erred in subjecting it to the attachment writ, contending that the writ did not contain concrete and specific grounds to justify the attachment. LSC also argued that the CA did not uphold the trial court's finding on privity of contract, but instead held that an existing contractual relation is not a requirement for the issuance of an attachment writ. LSC further claimed that the allegations in the complaint are not badges of fraud but legal justifications for its refusal to pay Villarin directly. LSC also argued that it was merely a nominal party in the case and should not have been subjected to the attachment writ.

In G.R. No. 175727, LSC asserted that the trial court erred in ordering it to deposit a certain amount of money in court under the joint account of Casscor and Villarin. LSC claimed that the order to deposit amounted to a prejudgment of the case, third attachment writ, and mandatory injunction. LSC also argued that the fixing of the amount of the deposit was misleading and failed to consider possible counterclaims and cross-claims. LSC further contended that the trial court did not have jurisdiction to issue the order to deposit and that it should not be subjected to such an order as it was originally impleaded as a nominal party.

Overall, LSC contested the attachment writ and the order to deposit, arguing that they were invalid under the relevant rules and jurisprudence.

ISSUES:

  1. Whether the trial court had jurisdiction to issue the Order to Deposit against LSC due to non-payment of docket fees.

  2. Whether LSC, as a nominal defendant, can be burdened more than the principal defendants.

  3. Whether the Order to Deposit is a prejudgment of the case, a third attachment writ, or a mandatory injunction.

  4. Whether the Villarin and Dajao groups have proven their entitlement to the Order to Deposit.

  5. Whether LSC has admitted liability to Villarin, et al.

  6. Whether the appellate court erred in accepting the Valeros letter as a judicial admission of LSC's liability.

  7. Whether LSC can be subjected to an attachment writ based on the MOA.

  8. Whether an implied trust relation exists between Villarin and LSC.

  9. Whether or not the provisional deposit order can be applied in this case where the creditor seeks to attach properties of his debtor's debtor without establishing a juridical link between the two debts.

  10. Whether a provisional deposit order can be granted in this case.

  11. Whether the second category of provisional deposit cases is applicable in this case.

RULING:

  1. The trial court did not have jurisdiction to issue the Order to Deposit against LSC due to non-payment of docket fees.

  2. LSC, as a nominal defendant, cannot be burdened more than the principal defendants.

  3. The Order to Deposit is not a prejudgment of the case, a third attachment writ, or a mandatory injunction.

  4. The Villarin and Dajao groups have not proven their entitlement to the Order to Deposit.

  5. LSC has not admitted liability to Villarin, et al.

  6. The appellate court erred in accepting the Valeros letter as a judicial admission of LSC's liability.

  7. LSC cannot be subjected to an attachment writ based on the MOA. The MOA can only bind the parties thereto and LSC did not enter into any agreement or contract with Villarin.

  8. The court cannot make an authoritative characterization of the juridical relation between LSC and Villarin. However, even assuming that an implied constructive trust relation exists, it does not fall under the purview of Section 1(b) as there would be no fiduciary relation between LSC and Villarin.

  9. The provisional deposit order cannot be applied in this case because there is no juridical link between the two debts. The deposit order cannot be directed at LSC as it is not a party to the contract sought to be enforced. Furthermore, the nature of the relief sought in this case does not preclude LSC from contesting the demandability of the amount deposited.

  10. A provisional deposit order cannot be granted in this case. The first category of provisional deposit cases is also inapplicable because the depositor-party, LSC, asserts that it has no liability to the plaintiff, CASSCOR, and there is a dispute regarding the demandability of the amount covered by the deposit order. Furthermore, LSC has its own claims against CASSCOR which can possibly compensate for any amounts CASSCOR may be entitled to receive from LSC under their contract. Therefore, there is no juridical tie between LSC and the alleged beneficiary, Villarin, et al., which would suffice as a basis for the deposit order.

  11. The second category of provisional deposit cases is also inapplicable. There is no regular flow of incoming amounts from non-parties to the case, and the actual liability of LSC to CASSCOR is still in dispute.

PRINCIPLES:

  • 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, the same to be held as security for the satisfaction of any judgment that may be secured in said action by the attaching creditor against the defendant. The purpose of attachment is to prevent the loss or dissipation of the property by fraud and to subject it to payment of the creditor's claim.

  • The rules governing the issuance of a preliminary attachment are strictly construed against the applicant, and if the requisites for its grant are not all present, the court should refrain from issuing it as it would act in excess of its jurisdiction.

  • To sustain an attachment, 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 to give consent. A debt is fraudulently contracted if at the time of contracting it, the debtor had a preconceived plan or intention not to pay.

  • The standard of construction of the rules on preliminary attachment is reiterated as strict against the applicant in order to protect the rights and interests of the debtor.

  • Contracts take effect only between the parties, their assigns and heirs, except when the rights and obligations arising from the contract are not transmissible by their nature, stipulation, or provision of law.

  • A constructive trust is a trust not created by any words, either expressly or impliedly, evincing a direct intention to create a trust but by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.

  • 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.

  • The term "creditors" in Rule 57 should be construed broadly to contemplate all classes of creditors regardless of the source of obligation, but a juridical tie is still required.

  • The legal principle of privity of contract justifies a party's refusal to directly remit its payables to a third party with whom they did not contract.

  • Provisional deposit orders can be seen as falling under two general categories: when the demandability of the money or other property to be deposited is not contested by the party-depositor, and when the party-depositor regularly receives money or other property from a non-party during the pendency of the case. (Eternal Gardens Memorial Parks Corp. v. First Special Cases Division, Intermediate Appellate Court and Reyes v. Lim)

  • The most equitable solution to prevent unjust enrichment in cases where the nature of the relief sought precludes the depositor-party from contesting the demandability of the amounts sought to be deposited is a provisional deposit order, so that the amount deposited may easily be turned over to whoever would be adjudged properly entitled thereto. (Eternal Gardens Memorial Parks Corp. v. First Special Cases Division, Intermediate Appellate Court and Reyes v. Lim)

  • In cases involving provisional deposit orders covering sums regularly received from non-parties to the case by the depositor-party during the pendency of the proceedings, the court may order the depositor-party to deposit such sums with the court to ensure that it would be timely transferred to the party properly entitled thereto. (Go v. Go, Bustamante v. CA, Province of Bataan)

  • A contract can only bind the parties who entered into it and cannot favor or prejudice a third person, even if he is aware of such a contract and has acted with knowledge thereof. (as mentioned in the case, civil law principle)

  • In a specific performance case, the defendant can put in issue the existence of any liability on his or her part to the plaintiff.

  • In provisional deposit orders of the first category, the depositor-party does not, or is precluded, from contesting the demandability of the money or property sought to be deposited. The depositor-party is presumed to have resigned some interest in the deposited money or property.

  • A deposit order cannot be granted when there is no juridical tie between the obligee-plaintiff and the alleged beneficiary, and when the obligor-defendant failed to set up a cross-claim to connect the two parties. The deposit order would only amount to a circumvention of the rules on preliminary attachment and an unjust imposition on the alleged beneficiary who is not a party to the contract sought to be enforced.