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G.R. No. 167131 - SPOUSES NAPOLEON FLORES, SR., ET AL. v. STRONGHOLD INSURANCE COMPANY, INC.

G.R. No. 167131 - SPOUSES NAPOLEON FLORES, SR., ET AL. v. STRONGHOLD INSURANCE COMPANY, INC.

PHILIPPINE SUPREME COURT DECISIONS

FIRST DIVISION

[G.R. NO. 167131 : September 12, 2006]

SPOUSES NAPOLEON FLORES, SR. and VERONIDIA FLORES, doing business under the name FLORES Garments Mfg., and ALEXANDER J. FLORES, in his capacity as Attorney-in-Fact of NAPOLEON M. FLORES, Petitioners, v. STRONGHOLD INSURANCE COMPANY, INC., Respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 77593 and its Resolution denying the motion for reconsideration thereof. The assailed decision nullified the Order2 of the Regional Trial Court (RTC) of Makati City, Branch 63, directing respondent Stronghold Insurance Corporation (SICI) to pay petitioner-spouses Napoleon and Veronidia Flores actual and moral damages, attorney's fees and costs of suit.

Spouses Napoleon M. Flores, Sr. and Veronidia J. Flores were engaged in business under the business name Flojos Garments Manufacturing (FGM). On April 28, 1995, Stephen Liu and the spouses Flores executed a Memorandum of Agreement (MOA),3 whereby the latter sold for P8,500,000.00 all their rights and interests over their garments manufacturing business, including all its existing licenses and government permits, machinery, supplies and spare parts, and its real property located at No. 17, Jacamar St., Marikina Subdivision, Marikina City; and all other accessories, raw materials, and other related items. For his part, Liu obliged himself to assume the payment of the spouses' obligations with Metropolitan Bank and Trust Company as part of the purchase price, the balance of the purchase price to be paid within 120 days from the date of the signing of the MOA.

On September 7, 1995, Liu filed a complaint4 against the spouses Flores and Alexander J. Flores (in his capacity as attorney-in-fact of Napoleon Flores, Sr.) for specific performance and damages with a prayer for issuance of temporary restraining order and/or writ of preliminary injunction and a writ of preliminary attachment. He alleged that the spouses Flores failed and refused to execute the necessary deeds of conveyance, transfer or assignment of all the items included in the MOA, causing damages to him; as a consequence of their acts of harassment and obstruction, he was entitled to the issuance of a temporary restraining order or writ of preliminary injunction. He averred that, unless a writ of preliminary attachment was issued, there might not be sufficient security for the satisfaction of any judgment which the court might render against them.

On October 3, 1995, the RTC issued an Order5 granting Liu's prayer for writ of preliminary injunction and attachment upon the filing and approval of an injunction bond in the amount of P2,000,000.00 and attachment bond in the amount of P3,000,000.00. The plaintiff thus posted Attachment Bond No. 00565 and Injunction Bond No. 00566 issued by Stronghold Insurance Corporation, Inc. for P3,000,000.00 and P2,000,000.00, respectively.

In their Answer to the complaint,6 the spouses Flores alleged that the complaint failed to state a cause of action as there was no allegation that he complied with his obligations under the MOA; it was Liu who failed to pay the balance of the purchase price of the property, less the amounts due to their creditors; such failure caused them (spouses Flores) actual damages in the form of accumulated interests and penalties on their outstanding loans, loss of expected profits on prospective and realizable business ventures and opportunities. They prayed that they likewise be awarded moral damages for the mental anguish; besmirched reputation, moral shock, sleepless nights and other similar injuries, exemplary damages in order to serve as an example for the plaintiff and other persons in maliciously and capriciously filing baseless and unjust suit; and attorney's fees as they were constrained to hire the services of counsel.7 They interposed counterclaims and averred that the ground relied upon for the issuance of preliminary attachment did not exist at the time of the filing of the present suit.8

On October 13, 1995, the spouses Flores filed a Motion to Lift Preliminary Injunction and Attachment.9 They manifested their willingness to post a bond to lift the preliminary injunction and a counterbond to lift the preliminary attachment.

On May 22, 1996, the RTC issued an Order10 granting the motion of the spouses Flores to lift the writ of attachment upon the filing and approval of a counterbond in the amount of P6,000,000.00; however, the RTC denied the prayer to lift the writ of preliminary injunction. Upon motion of the spouses Flores, the RTC reconsidered its order and reduced the amount of the counterbond to P3,000,000.00. It rendered judgment on June 25, 199911 in favor of the spouses Flores, declaring the MOA rescinded and ordering Liu to pay actual damages and attorney's fees. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of defendants, declaring the Memorandum of Agreement rescinded, ordering both plaintiff and defendants to surrender that which they have respectively received and to place each other as far as practicable in his original situation, and ordering plaintiff to pay the following:

1. The amount of P6,582,133.08 as payment to all of defendants' creditors;

2. The amount of P2,500,000.00 as compensation for the materials and machines lost; [and]

3. The amount of [P225,150.00] as attorney's fees and expenses.

SO ORDERED.12

The trial court upheld the spouses Flores' claim that it was Liu who committed a breach of the MOA on the following ratiocinations:

Unrebutted testimony for the defendants belied the allegation of plaintiff. It was stated that all records of the business including the licenses were turned over to plaintiff, together with the factory premises; the same being kept therein. It was, likewise, stated that the licenses, as of the date of the turnover, had all been effective and valid. A certification was obtained from the Bureau of Customs that no order of revocation was ever issued against defendants' business, to corroborate the testimony. The accreditation from the Garments and Textile Export Board was still valid at the time of the agreement's execution and was even used to export a load of garments.

On the other hand, it appears that it was plaintiff who failed to perform his obligations. Despite full compliance on the part of defendants, plaintiff failed to pay the P8,000,000.00 balance of the purchase price less any deductions from payments to defendants' creditors. Indeed, plaintiff contends that no balance remains to be paid defendants their debts to creditors having been found by him to actually be in the amount of P14,631,082.00; P6,631,082.00 more than the purchase price. In other words, plaintiff wants the court to believe that as there is more than P8,000,000.00 in debts to pay, no further amount is due defendants outside of the downpayment. However, the court observes that none of the debts had been paid; not even any such which may be covered by the P8,000,000.00. Plaintiff has not alleged payment of any creditors; neither those covered by paragraph 5 of the agreement and Annex B thereof, nor those included in plaintiff's own inventory of accounts payable.

And although plaintiff alleged failure of payment due to the unsatisfied requirement of special power of attorney, no proof of such requirement was presented.

The foregoing considered, it is clear that plaintiff and not defendants breached the Memorandum of Agreement. Ergo, defendants and not plaintiff are entitled to rescission. For the same reasons and more, no amount for damages nor attorney's fees are due plaintiff. Defendants have faithfully performed their obligations and in good faith. Any unrealized income or damage to reputation asserted by plaintiff remain mere allegations and was caused by no act of defendants but his own.

It is defendants who are entitled to damages and attorney's fees. Materials and machinery of the business have been found missing and unaccounted for since turnover of possession and custody to plaintiff. The redemption period for the property and improvements mortgaged, an essential and intrinsic component of said business, lapsed and were consequently foreclosed upon. Debts which should have been paid in accordance with paragraph 5 of the agreement remain outstanding. Defendants were constrained to engage the services of an attorney in order to protect their rights and interest, and to pay the same P225,150.00. (Exhs. 1, 2, and 9 to 12).13

On July 1, 1999, the spouses Flores received a copy of the June 25, 1999 decision. The parties did not appeal the decision.

On July 16, 1999, the spouses Flores filed their application for damages against the bonds posted by the SICI, captioned "A Motion to Set Hearing on the Damages Caused by the Injunction and Attachment."14 They alleged that, by posting the injunction/attachment bonds, Liu and SICI bound themselves to be jointly and severally liable for such damages sustained by them by reason of the injunction/attachment if the RTC should finally decide that it was not entitled to such remedy.15 The spouses Flores served a copy of their pleading on Liu and SICI by registered mail on July 16, 1999.

In its Comment and/or Opposition16 to the said motion, SICI averred that the motion was premature, and that the alleged damages suffered by the spouses Flores were not caused by the injunction or attachment for which the bonds posted by it could be proceeded against, thus:

a) With all due respect, said motion has no factual and legal basis as all allegations therein contained did not set forth the facts showing their right to damages, the nature of damages and the amount, if any, corresponding to such damages directly or indirectly caused by either injunction or the attachment;

b) The motion is prematurely filed as there is no showing that either the injunction or the attachment was illegally and improperly issued;

c) There is no evidence whatsoever on record to show that either the injunction or the attachment was illegal or improper;

d) The damages, if any, incurred by defendants are not by reason of either the injunction or the attachment for which the bonds put up by Stronghold can be held liable;

e) In fact, the issue of the injunction or the attachment was not even touched in the Decision rendered by this Honorable Court dated June 25, 1999. There was not even any inference to either injunction or the attachment. That is because defendants never challenged the injunction or the attachment for having been issued illegally or improperly. It is only now that it is raised, for the first time, when it is already too late-in-a-day after the decision was rendered;

f) What is significant to note is the finding of the Honorable Court that because of the "breach of the Memorandum of Agreement" by plaintiff "no amount of damages nor attorney's fees are due plaintiff." The decision did not say that because of the bonds, the defendants are entitled to damages;

g) The motion did not comply with Section 20, Rule 57 of the Rules of Court because it did not specify the amount for each item of damages. More importantly, defendants have not shown in the motion the facts showing their rights to damages;

h) Both injunction and attachment bonds were issued by Stronghold upon application by plaintiff and pursuant to the legal orders of this Honorable Court and which orders were never questioned by defendants.17

Alexander Flores was presented as witness to prove the damages which the spouses Flores claimed to have suffered on account of the improper issuance of the writ of attachment/injunction. The spouses Flores did not testify. For its part, SICI opted not to present any evidence to support its opposition to the motion, on its claim that there was no factual proof of damages. Besides, the spouses Flores' application for damages was time-barred because it was filed three days after the reglementary period to appeal (July 1, 1999); hence, the period to appeal had lapsed.

On January 21, 2002, the RTC issued an Order18 directing SICI to pay the spouses Flores actual and moral damages, attorney's fees, and costs of suit. The pertinent portion reads:

WHEREFORE, Stronghold Insurance Corporation is directed to pay the defendants the following:

1.) The amount of P2.5 million as actual damages for the materials and machines lost;

2.) The amount of P2.0 million as moral damages;

3.) The amount of P225,150.00 as attorney's fees; andcralawlibrary

4.) The costs of the suit.

SO ORDERED.19

SICI filed a motion for reconsideration, which the RTC denied in an Order20 dated July 30, 2002.

SICI appealed the Order of the RTC to the CA, alleging that:

I

THE LOWER COURT PALPABLY COMMITTED GRAVE ERROR IN ORDERING APPELLANT TO PAY THE DEFENDANTS THE AMOUNT OF P2.5 MILLION AS ACTUAL DAMAGES FOR MATERIALS AND MACHINES LOST; THE AMOUNT OF P2.0 MILLION AS MORAL DAMAGES; AND THE AMOUNT OF P225,150.00 AS ATTORNEY'S FEES.

II

THE LOWER COURT PALPABLY COMMITTED GRAVE ERROR WHEN IT ISSUED THE QUESTIONED ORDERS DESPITE JUDGMENT HAVING BECOME FINAL AND EXECUTORY.21

On November 10, 2004, the CA rendered a Decision22 nullifying the Order of the RTC, holding that the spouses Flores' motion for damages against the bonds were filed on July 16, 1999; the decision of the trial court had already become final and executory as to them since they did not appeal the decision. Thus, the CA declared, the RTC no longer had jurisdiction to hear the motion nor amend its own decision which had become final and executory.

The spouses Flores filed a motion for reconsideration which the CA denied in a Resolution23 dated February 17, 2005.

The spouses Flores, now petitioners, seek relief from this Court via Petition for Review on Certiorari, contending that:

THE COURT OF APPEALS DECIDED A QUESTION OF LAW NOT IN ACCORD WITH THE LAW OR APPLICABLE DECISIONS OF THE HONORABLE COURT IN HOLDING THAT THE RTC HAD LOST JURISDICTION TO HEAR AND ACT UPON THE MOTION FOR DAMAGES FILED BY THE PETITIONERS.24

The sole issue in this case is whether the petition for application of damages against the bonds posted by respondent SICI was already time-barred when petitioners filed the same on July 16, 1999.

The petition is meritorious.

Section 20 of Rule 57 of the 1997 Rules of Civil Procedure reads:

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 party and 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.

An application for damages against the bonds must be filed in the same case where the bond was issued, either (a) before the trial or (b) before the appeal is perfected or (c) before the judgment becomes executory.25 The principal party and his surety or sureties must be notified of said application. This rule is mandatory.26 In the absence of due notice to the surety, no judgment for damages may be entered and executed against it.27

In this case, petitioners, as defendants below, received the Decision of the RTC dated June 25, 1999 on July 1, 1999. Under Rule 41 of the Revised Rules of Court, the decision may be appealed to the CA by filing a notice of appeal with the court which rendered judgment or final order within fifteen (15) days from notice thereof.

After the lapse of the fifteen-day period, the judgment or final order becomes final and executory and is beyond the power or jurisdiction of the court which rendered it to further amend or reverse.28 The court loses jurisdiction over the case except to issue orders for the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal, approve compromises, permit appeals of indigent litigants, order execution pending appeal, and allow withdrawal of the appeal.29

Article 13, last paragraph of the New Civil Code provides that in computing a period, the first day shall be excluded and the last day included. Section 1, Rule 22, of the Revised Rules of Court also provides that, in computing any period of time prescribed or allowed by the Rules, or by order of the court or by any applicable Statute, the day of the act or event from which the designated period of time begins is to be excluded and the date of the performance included.

In the present case, petitioners received a copy of the decision on July 1, 1999. Conformably with Section 1, Rule 22, in relation to Section 3, Rule 41, July 1, 1999 should be excluded from the computation of the fifteen-day period; hence, the 15-day period should be computed from July 2, 1999. Counting 15 days from July 2, 1999, the 15th day fell on July 16, 1999; as such, petitioners had until July 16, 1999 within which to perfect their appeal from the decision of the trial court or file their application under Section 20, Rule 57.

Section 3, Rule 13 provides that a pleading may be filed by registered mail, and the date of the mailing as shown by the post office stamp on the envelope or the registry receipt shall be considered as the date of the filing thereof.

SEC. 3. Manner of filing. - The filing of pleadings, appearances, motions, notices, orders, judgments and all other papers shall be made by presenting the original copies thereof, plainly indicated as such, personally to the clerk of court or by sending them by registered mail. In the first case, the clerk of court shall endorse on the pleading the date and hour of filing. In the second case, the date of the mailing of motions, pleadings, or any other papers or payments or deposits, as shown by the post office stamp on the envelope or the registry receipt, shall be considered as the date of their filing, payment, or deposit in court. The envelope shall be attached to the record of the case.

Under Section 7, Rule 13 of the Rules of Court, pleadings may be served by registered mail or by ordinary mail:

SEC. 7. Service by mail. - Service by registered mail shall be made by depositing the copy in the office, in a sealed envelope, plainly addressed to the party or his counsel at his office, if known, otherwise at his residence, if known, with postage fully pre-paid, and with instructions to the postmaster to return the mail to the sender after ten (10) days if undelivered. If no registry service is available in the locality of either the sender or the addressee, service may be done by ordinary mail.

The Court notes that petitioners filed their application and served a copy thereof on respondent by registered mail on July 16, 1999. As of said date, the decision of the RTC had not yet become final and executory, and the fifteen-day period to appeal the decision had not yet lapsed. Thus, the application of the petitioners with the RTC was not yet time-barred.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 77593 is REVERSED. The Court of Appeals is ordered to REINSTATE the appeal of petitioners and to resolve the same in due course. No costs.

SO ORDERED.

Panganiban, C.J., Chairperson, Ynares-Santiago, Austria-Martinez, Chico-Nazario, JJ., concur.

Endnotes:


1 Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Lucas P. Bersamin and Celia C. Librea-Leagogo, concurring; rollo, pp. 10-17.

2 Penned by Presiding Judge Tranquil P. Salvador, Jr.; id. at 76-79.

3 Records, pp. 402-405.

4 Id. at 1-13.

5 Id. at 86-87.

6 Id. at 124-128.

7 Id. at 126-127.

8 Id. at 126.

9 Id. at 114-116.

10 Id. at 207-208.

11 Id. at 537-542.

12 Rollo, p. 75.

13 Id. at 74-75.

14 Records, pp. 546-548.

15 Id. at 546-547.

16 Id. at 569-573.

17 Records, pp. 692-693.

18 Rollo, pp. 70-79.

19 Id. at 79.

20 Records, p. 819.

21 CA rollo, p. 37-38.

22 Rollo, pp. 61-67.

23 Id. at 69.

24 Id. at 46.

25 Carlos v. Sandoval, G.R. No. 135830, September 30, 2005, 471 SCRA 266, 282.

26 Ponce Enrile v. Capulong, G.R. No. 88373, May 18, 1990, 185 SCRA 504, 514.

27 Pioneer Insurance & Surety Corporation v. De Dios Transportation, Co., Inc., 454 Phil. 409, 429 (2003).

28 Heirs of the Late Flor Tungpalan v. Court of Appeals, G.R. No. 136207, June 21, 2005, 460 SCRA 392, 397. (2005).

29 Marawi Marantao General Hospital, Inc. v. Court of Appeals, 402 Phil. 356, 369-370 (2001).

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