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[G.R. NO. 147970 : March 31, 2006]

PCL Industries Manufacturing Corporation, Petitioner, v. The COURT OF APPEALS and ASA Color & Chemical Industries, Inc., Respondents.



This resolves the petition for certiorari seeking the reversal of the Decision1 of the Court of Appeals (CA) promulgated on February 21, 2001, which affirmed the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 226; and the CA Resolution dated May 9, 2001 denying petitioner's motion for reconsideration.

The antecedent facts are as follows:

On October 10, 1995, private respondent filed a complaint with the RTC for Sum of Money with Preliminary Attachment against herein petitioner. Private respondent claims that during the period from January 18, 1994 to April 14, 1994, petitioner purchased and received from it various printing ink materials with a total value of P504,906.00, payable within 30 days from the respective dates of invoices; and that petitioner, in bad faith, failed to comply with the terms of the sale and failed to pay its obligations despite repeated verbal and written demands.

Petitioner was served with summons together with the Writ of Preliminary Attachment on October 20, 1995. On October 23, 1995, petitioner filed a Motion to Dissolve and/or Discharge Writ of Preliminary Attachment. On November 20, 1995, the trial court issued an Order denying petitioner's motion to dissolve the writ of preliminary attachment. Petitioner's motion for reconsideration of said order was also denied per Order dated January 2, 1996. Petitioner no longer elevated to the higher courts the matter of the propriety of the issuance of the writ of preliminary attachment.

In the meantime, on October 30, 1995, petitioner filed its Answer with Counterclaim. Petitioner claims that the various printing ink materials delivered to it by private respondent were defective and sometime in August, October, and November of 1993, they have returned ink materials to private respondent as shown by several Transmittal Slips. Nevertheless, petitioner admits that it continued to buy ink materials from private respondent in 1994 despite having rejected ink materials delivered by private respondent in 1993. Petitioner, however, insists that the ink materials delivered by private respondent in 1994 were also defective and they made known their complaints to Frankie, the authorized representative of private respondent. In a letter dated June 30, 1995, petitioner informed private respondent that it had been complaining to its (private respondent's) representative about the quality of the ink materials but nothing was done to solve the matter. Private respondent replied through a letter dated July 16, 1995, that it was giving petitioner the option to return the products delivered, "sealed and unused" within one week from receipt of said letter or pay the full amount of its obligation. Petitioner answered in a letter dated September 26, 1995, that private respondent should pick up at its plant the remaining unused defective ink materials, and requested to meet with private respondent to thresh out the matter. No meeting was ever held. Petitioner further claims that it suffered damages in the amount of P1,592,794.50 because its customers rejected the finished plastic products it delivered, complaining of the bad smell, which, according to petitioner, was caused by the defective ink materials supplied by private respondent.

After trial on the merits, the trial court rendered its Decision dated January 8, 1999, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff. Defendant PCL Industries Manufacturing Corporation is hereby ordered to pay plaintiff:

1) P504,906.00 plus 20% interest per annum from April 1994 until fully paid;

2) 25% of the above amount as and for attorney's fees; andcralawlibrary

3) cost of suit.

The counterclaim of defendant is hereby dismissed for insufficiency of evidence.


The RTC Decision was appealed by herein petitioner to the CA. On February 21, 2001, the CA promulgated its Decision affirming the RTC judgment. The CA held that there was sufficient evidence to prove that herein petitioner had the intention of defrauding private respondent when it contracted the obligation because it agreed to pay within 30 days from the date of purchase but once the merchandise was in its possession, it refused to pay. Furthermore, the CA ruled that the issue on the propriety of the issuance of the writ of preliminary attachment should be laid to rest since petitioner no longer questioned the trial court's orders before the higher courts.

As to the alleged defect of the ink delivered by private respondent, both the trial court and the CA found that the evidence presented by petitioner was insufficient to prove that it was indeed the ink from private respondent which caused the unwanted smell in petitioner's finished plastic products. The trial court's analysis of the evidence led it to the following conclusions, to wit:

[D]efendant presented transmittal receipts, which allegedly represent the items returned by defendant [herein petitioner] to plaintiff [herein respondent].

x x x

A closer look at these three transmittal receipts would readily show that they are all for deliveries made in 1993, whereas the items admittedly received by defendant and listed in paragraph 2 of the Complaint are all delivered and dated from January 18, 1994 to April 14, 1994.

The items, therefore, returned for being defective and communicated by defendant to plaintiff are for those printing ink materials delivered in 1993 and these are not the items left unpaid and in issue in this present Complaint.

There is no other proof of demand made by defendant to plaintiff corporation as to communicate to plaintiff any defect in the printing ink materials delivered in 1994 except the demand letter (Exhibit "42") which is dated September 26, 1995.

As admitted by defendant's witness, Eleno Cayabyab, the demands made by Mr. Jovencio Lim to plaintiff had been oral or verbal only and made only on two occasions. In fact said witness cannot remember exactly when these oral demands were made by Mr. Jovencio Lim, x x x

x x x

As regards the testimony of defendant's witness Jovencio Lim that defendant's end-users returned the plastic packaging materials to defendant and defendant had to reimburse its clients of the amount paid by them and defendant allegedly suffered damages, defendant failed to present sufficient evidence of this allegation. x x x3

Affirming the foregoing findings of the trial court, the CA further noted that:

As may be observed, as early as January 31, 1994, the appellant [herein petitioner] had received complaints from its customers about the alleged unwanted smell of their plastic products. However, no steps were taken to investigate which of its several suppliers delivered the defective ink and, if indeed, the appellee's ink materials were the cause of the smell, no immediate communications were sent to the latter. On the contrary, it (appellant) continued to place orders and receive deliveries from the appellee. Worse, the appellant failed to convincingly show that the appellant stopped using the subject ink materials upon notice of its customers of the alleged unwanted smell of the products. Conversely, the appellant continued using the same in their production of plastic materials which would only show that the cause of the alleged stinking smell cannot be attributed to the subject ink materials used. The appellant tried to convince us that the subject ink materials were the same ink delivered by the appellee and used in the products that were returned because of the unwanted smell. However, its evidence fails to impress us.

There is no indication that the plasticized pouches printed by the defendant-appellant and returned by its customers were printed with the use of the paint delivered by the plaintiff-appellee. The former's evidence on this point are either self-serving or unreliable, or totally unworthy of credence, as shown by the following:

1) The "work process" forms contain the names of two (2) or three (3) suppliers, as shown by the following:

Exh. "12" - STOCK/ASA










This is an indication that the supplier of the obnoxious paint materials has not been properly identified or pinpointed.

2) The "Memorandum" to the appellant's Production Department from its Records/Receiving Section is an internal memo that does not indicate which of their several suppliers delivered the "inferior quality of ink". No witness from the appellant's Production Department was presented to attest that the ink supplied by the appellee was found defective. Not even the person who prepared the said "Work Process" sheets was presented to explain the entries thereon.

3) Exhibits "30", "31" and "32" are supposedly memos from Frank F. Tanos of the Omega Manufacturing (one of the appellant's customers), alleging that they have rejected certain printed materials due to "unwanted smell". Again, these memos do not indicate the source of such unwanted smell. In any case, the memos were respectively dated June 15, 1994, July 15, 1994 and March 30, 1995 - - which dates are too far away from the deliveries made by the appellee.

4) The defendant-appellant made returns of ink products to the appellee much earlier on August 3, 1993, August 6, 1993, October 13, 1993 and November 3, 1993 as shown by the delivery receipts/return slips of such dates. According to the appellee, these were samples that were really returnable if not acceptable. This explanation appears to be plausible, since the quantity involved appears to be unusually low, compared to the questioned and unpaid deliveries. At any rate, no similar delivery receipts or return slips were presented to show that the subject ink materials were indeed rejected and returned by the appellant to the appellee. On the contrary, the appellant admits that they still have them in their possession for the reason that they were not picked up by the appellee's representative. Such reasoning appears to be shallow and unworthy of credence. For if the materials were indeed not picked up within a reasonable time by the appellee's representative, the appellant should have taken steps to return them; otherwise they will be held liable for the value thereof.

5) The defendant-appellant never made any written or formal complaint about the alleged inferior quality ink and no steps were taken to demand restitution or rectification.

Its letter dated June 30, 1995 was the first time it made a communication to the appellee about the alleged inferior quality of the ink delivered by the latter. This letter was its answer to the appellee's letter of demand for payment. Obviously, the appellant's letter was written to serve as an excuse for its failure to pay for its contractual obligations. In any case, as a reaction to such letter, the appellee dared the appellant to return the materials within one week, through its letter of July 16, 1995. Obviously, no such return was made.4 (Emphasis supplied)cralawlibrary

Petitioner then filed the present Petition for Review on Certiorarion the following grounds:







First of all, although the petition states that it is one for certiorari under Rule 65 of the Rules of Court as it imputes grave abuse of discretion committed by the CA, the Court shall treat the petition as one for review on certiorari under Rule 45, considering that it was filed within the reglementary period for filing a Petition for Review on Certiorari and the issues and arguments raised basically seek the review of the CA judgment.

Secondly, it should be pointed out that petitioner mistakenly stated that it was the CA that issued the writ of preliminary attachment. Said writ was issued by the trial court. On appeal, the CA merely upheld the trial court's order, ruling that the applicant's (herein private respondent's) affidavit was sufficient basis for the issuance of the writ because it stated that petitioner had the intention of defrauding private respondent by agreeing to pay its purchases within 30 days but then refused to pay the same once in possession of the merchandise.

The Court, however, finds the issuance of the Writ of Preliminary Attachment to be improper. In Philippine Bank of Communications v. Court

of Appeals,6 the Court held thus:

Petitioner cannot insist that its allegation that private respondents failed to remit the proceeds of the sale of the entrusted goods nor to return the same is sufficient for attachment to issue. We note that petitioner anchors its application upon Section 1(d), Rule 57. This particular provision was adequately explained in Liberty Insurance Corporation v. Court of Appeals, as follows'

To sustain an attachment on this ground, 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 (Republic v. Gonzales, 13 SCRA 633). (Emphasis ours)

We find an absence of factual allegations as to how the fraud alleged by petitioner was committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to honor the admitted obligation cannot be inferred from the debtor's inability to pay or to comply with the obligations.7 (Emphasis supplied)cralawlibrary

More recently, in Philippine National Construction Corporation v. Dy,8 the Court ruled that the following allegations in an affidavit to support the application for a Writ of Preliminary Attachment is insufficient, to wit:

Radstock grounded its application for a Writ of Preliminary Attachment on Section 1 (d) and (e) of Rule 57 of the Rules of Court which provides:

SECTION 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:

. . .

(d) In an action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, or in the performance thereof;

(e) In an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors;

. . .

In support of these grounds, the affidavit of merit alleged the following:

3. Despite repeated demands and periodic statements of accounts sent to PNCC for the settlement of the credit obligation Yen 5.46 Billion, its interests and penalties within three (3) days from demand in writing, and in the case of credit obligation for P20,000,000 which PNCC had agreed to punctually liquidate the said advances to its subsidiary, PNCC failed to pay and honor its obligations herein stated.

x x x

5. That PNCC knowing that it is bankrupt and that it does not have enough assets to meet its existing obligations is now offering for sale its assets as shown in the reports published in newspapers of general circulation.

6. That the above series of acts as enumerated in paragraphs 3, 4 and 5[,] Marubeni believes, constitute fraud on the part of PNCC in contracting the obligations mentioned herein and will surely prejudice its creditors.

x x x

We do not see how the above allegations, even on the assumption they are all true, can be considered as falling within sub-paragraphs (d) and (e). The first three assert, in essence, that PNCC has failed to pay its debt and is offering for sale its assets knowing that it does not have enough to pay its obligations. As previously held, fraudulent intent cannot be inferred from a debtor's inability to pay or comply with obligations. Also, the fact that PNCC has insufficient assets to cover its obligations is no indication of fraud even if PNCC attempts to sell them because it is quite possible that PNCC was entering into a bona fide good faith sale where at least fair market value for the assets will be received. In such a situation, Marubeni would not be in a worse position than before as the assets will still be there but just liquidated. Also, that the Financial Statements do not reflect the loan obligation cannot be construed as a scheme to defraud creditors.

As to the last two paragraphs, these merely stated that while PNCC continued to receive revenues from toll charges and other loan obligations the debt to Marubeni remained unpaid. Again, no fraud can be deduced from these acts. While these may be sufficient averments to be awarded damages once substantiated by competent evidence and for which a writ of execution will issue, they are not sufficient to obtain the harsh provisional remedy of preliminary attachment which requires more than mere deliberate failure to pay a debt. (Emphasis supplied)cralawlibrary

Similarly, in this case, the bare allegations in the applicant's affidavit, to wit:

6. PCL Industries Manufacturing Corporation, after receiving the above printing ink materials acted in bad faith when it failed to comply with the terms and conditions of the sale thereby prejudicing the interest of Asa Color & Chemical Industries, Inc.

x x x

10. Defendant [herein petitioner] was guilty of fraud in contracting the obligation when he [sic] agreed to pay the purchases within 30 days from date of purchases but once in possession of the merchandise, refused to pay his just and valid obligation thereby using the capital of plaintiff [herein private respondent] to the latter's prejudices [sic].9

are insufficient to prove that petitioner was guilty of fraud in contracting the debt or incurring the obligation. The affidavit does not contain statements of other factual circumstances to show that petitioner, at the time of contracting the obligation, had a preconceived plan or intention not to pay. Verily, in this case, the mere fact that petitioner failed to pay its purchases upon falling due and despite several demands made by private respondent, is not enough to warrant the issuance of the harsh provisional remedy of preliminary attachment.

However, with regard to the other issues raised in this petition, the Court finds the same unmeritorious.

This Court reiterated in Child Learning Center, Inc. v. Tagario,10 the well-settled rule that:

Generally, factual findings of the trial court, affirmed by the Court of Appeals, are final and conclusive and may not be reviewed on appeal. The established exceptions are: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of fact are conclusions without citation of specific evidence on which they are based; (8) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (9) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. (Emphasis supplied)cralawlibrary

Petitioner insists that the CA should have given weight to its evidence, i.e., the work processes (Exhibits "12" to "21"), which supposedly proved that respondent ASA supplied the ink that caused the unpleasant smell of petitioner's finished products. Petitioner argues that the CA erred in concluding that the work processes failed to prove that the defective ink definitely came from respondent because said documents showed not only the name of respondent ASA Color as supplier, but also the names of several other suppliers. Petitioner now tries to explain that the other names of suppliers appearing on the work processes were suppliers of plastic materials, so the only supplier of ink appearing on said documents is respondent ASA. It is further pointed out that, as testified by Jovencio Lim (Lim), petitioner's President, during the period covered by the Work Processes, they had only two suppliers of ink, CDI Sakada and respondent ASA Color.

The Court subjected the records of this case to close scrutiny, but found that petitioner's allegation that the CA judgment is based on misapprehension of facts, is absolutely unfounded.

There is no testimonial evidence whatsoever to support petitioner's belated explanation that the other names of suppliers appearing on the work processes are suppliers of plastic materials and not ink. Moreover, petitioner's witnesses contradict each other. Lim claims that during the period covered by the work processes, they had only 2 suppliers of ink, namely, CDI Sakada and ASA Color.11 On the other hand, contrary to Lim's claim, Victor Montañez, petitioner's Head of the Accounting Department, testified that at that time, they had three or four suppliers of ink materials.12 The work process form dated April 29, 1994 marked as Exhibit "20" also listed the suppliers as "SYNPAC/ASA/ CDI," and the colors used as "Brown-ASA" and "Yellow-CDI." Hence, petitioner's own evidence reveals that there were at least two suppliers of ink for that batch of production, as Lim has stated that both ASA and CDI are suppliers of ink materials.13 Hence, the CA was correct in ruling that petitioner's evidence failed to prove that it was indeed respondent ASA Color who supplied the defective ink.

Having failed to prove that the ink materials delivered by respondent were defective, petitioner does not have any basis for claiming the right to return and not pay for the materials it purchased from respondent. It is, therefore, no longer necessary to discuss whether it was the obligation of respondent to pick-up the ink from petitioner's warehouse.

Petitioner is likewise wrong in assuming that the CA totally disregarded the testimony of Frank Tanos (Tanos) who withdrew his testimony on February 24, 1998, or almost a year after testifying that petitioner's plastic products were rejected by customers due to the bad smell of paint. The CA made no ruling on the admissibility of Tanos' testimony. The appellate court merely stated that the memos (Exhibits "30" - "32") from said witness also do not prove the source of the unwanted smell. Thus, the CA obviously considered Tanos' testimony and the documents he identified for whatever they were worth, but still found them unconvincing to prove petitioner's claim that it was respondent who delivered defective ink materials.

Clearly, the findings of fact of both the trial court and the CA, as quoted above, are strongly rooted on testimonial and documentary evidence submitted by both parties. This case evidently does not fall under any of the enumerated exceptions to the general rule that factual findings of the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on appeal.

IN VIEW OF THE FOREGOING, the petition is partly GRANTED. Insofar as the issuance of the Writ of Attachment is concerned, the Court finds the same improper, hence, the attachment over any property of petitioner by the writ of preliminary attachment is ordered LIFTED effective upon the finality of this Decision. In all other respects, the Decision of the Court of Appeals dated February 21, 2001 and its Resolution dated May 9, 2001 are AFFIRMED.



1 Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Teodoro P. Regino and Josefina Guevara-Salonga, concurring.

2 CA rollo, p. 59.

3 CA rollo, pp. 56-59.

4 Rollo, pp. 177-179.

5 Rollo, p. 17.

6 G.R. No.115678, February 23, 2001, 352 SCRA 616.

7 Id. at 622-623

8 G.R. No. 156887, October 3, 2005.

9 RTC record, pp. 43-44.

10 G.R. No. 150920, November 25, 2005.

11 TSN of February 10, 1998, pp. 22 & 33.

12 TSN of July 29, 1997, p. 9.

13 TSN of February 10, 1998, p. 33.

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