Westmont Bank vs Funal Phil. Corp

G.R. No. 175733, July 8,2015

WESTMONT BANK (NOW UNITED OVERSEAS BANK PHILS.^*) Petitioner, v. FUNAI PHILIPPINES CORPORATION, SPOUSES ANTONIO AND SYLVIA YUTINGCO, PANAMAX CORPORATION, PEPITO ONG NGO, RICHARD N. YU, AIMEE R. ALBA, ANNABELLE BAESA, NENITA RESANE, AND MARIA ORTIZ, Respondents.

[G.R. No. 180162]

CARMELO V. CACHERO, Petitioner, v. UNITED OVERSEAS BANK PHILS. AND/OR WESTMONT BANK, Respondents.

Respondents Funai Philippines Corporation (Funai) and Spouses Antonio and Sylvia Yutingco (Sps. Yutingco) obtained loans from Westmont Bank (Westmont), now United Overseas Bank Phils.secured by several promissory notes (PNs) with different maturity dates. The PNs commonly provide that in case the same are referred to an attorney-at-law or a collection agency, or a suit is instituted in court for collection, Sps. Yutingco will be liable to pay twenty percent (20%) of the total amount due as attorney's fees, exclusive of costs of suit and other expenses.

However, Funai and Sps. Yutingco (original defendants) defaulted in the payment of the said loan obligations when they fell due, and ignored Westmont's demands for payment. Hence, the Westmont filed a complaint for sum of money, with prayer for the issuance of a writ of preliminary attachment before the RTC.

After an ex-parte hearing, the RTC issued a Writ of Preliminary Attachment ordering the attachment of the personal and real properties of the original defendants. Furthermore, the RTC issued another Order, directing the attachment of properties appearing under the names of other persons, but which were under the control of the original defendants. In view of the foregoing directives, Sheriff Gerry C. Duncan (Sheriff Duncan) and Sheriff Cachero levied and seized the properties situated at: (a) No. 9 Northpark Avenue, Bellevue, Grace Village, Quezon City; and (b) 2^nd Level, Phase III, Sta. Lucia East Grand Mall, Cainta, Rizal (Sta. Lucia).

Pepito Ong Ngo (Ngo), as Acting President of Panamax Corporation (Panamax), filed an Affidavit of Third-Party Claim over the properties seized in Sta. Lucia, claiming that Panamax is the true and lawful owner thereof.

Westmont filed an Amended Complaint impeding additional defendants, Panamax, Ngo, Aimee R. Alba, Richard N. Yu, Annabelle Baesa, and Nenita Resane (additional defendants), and praying that they be declared as mere alter egos, conduits, dummies, or nominees of Sps. Yutingco to defraud their creditors, including Westmont.

The RTC ruled that the additional defendants had no participation or any corresponding duty whatsoever relative to the subject PNs, which were executed only by the original defendants in favor of Westmont; hence, the latter cannot maintain an action against said additional defendants. The RTC further held that Westmont's imputation that the additional defendants acted as dummies, conduits, and alter egos of the original defendants are but mere inferences of fact, and not a narration of specific acts or set of facts or ultimate facts required in a complaint to entitle the plaintiff to a remedy in law. Thus, it concluded that the complaint failed to state a cause of action against the additional defendants.

Due to Westmont's continued refusal to release the seized items, the RTC issued a Break-Open Order  to enforce the writ. However the CA issued a TRO enjoining Sheriffs Duncan and Cachero from enforcing the writ of execution. The CA process server, Alfredo Obrence, Jr. (Obrence), duly served a copy of the TRO to the RTC Clerk of Court and informed Sheriff Cachero over the phone. Notwithstanding, the latter proceeded with the implementation of the writ of execution.

Westmont's representative who was able to secure a facsimile copy of the TRO showed the same to Sheriff Cachero who merely ignored it. Meanwhile, various audio, video, and electrical appliances were taken out from the warehouse and loaded into a truck.  Obrence arrived at the site and served on Sheriff Cachero a duplicate original copy of the TRO. Nonetheless, the items on the truck were not unloaded and the truck was allowed to leave the premises. Consequently, a case for indirect contempt was filed by Westmont against Sheriffs Cachero and Duncan, and Ngo.

Issues:

In G.R. No. 175733:
Westmont argues that the CA gravely erred in: (a) not applying the alter ego doctrine; (b) not considering additional defendants as necessary parties to the case; (c) not awarding exemplary damages in its favor; and (d) disregarding the express stipulation of the PNs regarding attorney's fees.

In G.R. No. 180162:

Sheriff Cachero asserts that the CA committed gross abuse of discretion when it adjudged him guilty of indirect contempt in implementing the writ of execution and the Break-Open Order despite the want of proper, timely, and adequate notice of the TRO.

Held:

At the outset, it must be stressed that Civil Case No. 98-86853 was submitted for judgment on the pleadings, on Westmont's motion. Hence, other than the hearing on the motion to discharge the attached items, no full-blown trial was conducted on the case.

In the case at bar, both the RTC and the CA were one in dismissing Westmont's Amended and Second Amended Complaints as to the additional defendants, but differed on the grounds therefor i.e., the RTC held that said complaints failed to state a cause of action, while the CA ruled that there was no cause of action, as to the additional defendants.

"Failure to state a cause of action and lack of cause of action are distinct grounds to dismiss a particular action. The former refers to the insufficiency of the allegations in the pleading, while the latter to the insufficiency of the factual basis for the action. Dismissal for failure to state a cause of action may be raised at the earliest stages of the proceedings through a motion to dismiss under Rule 16 of the Rules of Court, while dismissal for lack of cause of action may be raised any time after the questions of fact have been resolved on the basis of stipulations, admissions or evidence presented by the plaintiff."

Considering that, in this case, no stipulations, admissions, or evidence have yet been presented, it is perceptibly impossible to assess the insufficiency of the factual basis on which Sheriff Cachero asserts his cause of action. Hence, the ground of lack of cause of action could not have been the basis for the dismissal of this action.

Nonetheless, the Amended and Second Amended Complaints are still dismissible on the ground of failure to state a cause of action, as correctly held by the RTC.

"A complaint states a cause of action if it sufficiently avers the existence of the three (3) essential elements of a cause of action, namely: (a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (b) an obligation on the part of the named defendant to respect or not to violate such right; and (c) an act or omission on the part of the named defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. If the allegations of the complaint do not state the concurrence of these elements, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action."

It bears to stress that "while the facts alleged in the complaint are hypothetically admitted by the defendant, who moves to dismiss the complaint on the ground of failure to state a cause of action, it must, nevertheless, be remembered that the hypothetical admission extends only to the relevant and material facts well pleaded in the complaint, as well as inferences fairly deductible therefrom." Verily, the filing of the motion to dismiss assailing the sufficiency of the complaint "does not admit the truth of mere epithets of fraud; nor allegations of legal conclusions; nor an erroneous statement of law; nor mere inferences or conclusions from facts not stated; nor mere conclusions of law; nor allegations of fact the falsity of which is subject to judicial notice; nor matters of evidence; nor surplusage and irrelevant matter; nor scandalous matter inserted merely to insult the opposing party; nor to legally impossible facts; nor to facts which appear unfounded by a record incorporated in the pleading, or by a document referred to; nor to general averments contradicted by more specific averments."

Anent the award of attorney's fees, it is relevant to note that the stipulations on attorney's fees contained in the PNs constitute what is known as a penal clause. The award of attorney's fees by the CA, therefore, is not in the nature of an indemnity but rather a penalty in the form of liquidated damages in accordance with the contract between Westmont and the original defendants. "Such a stipulation has been upheld by [the] Court as binding between the parties so long as it does not contravene the law, morals, public order or public policy." Nevertheless, the courts possess the power to reduce the amount of attorney's fees whether intended as an indemnity or a penalty, if the same is iniquitous or unconscionable. 

Westmont's claim for exemplary damages, the Court does not find any factual and legal bases for the award. A perusal of the original, amended and second amended complaints failed to disclose specific averments that will show the wanton, fraudulent, reckless, oppressive or malevolent acts committed by the original defendants with respect to the loan obligation sought to be enforced.

Re: G.R. No. 180162

It is well-settled that a sheriff performs a sensitive role in the dispensation of justice. He is duty-bound to know the basic rules in the implementation of a writ of execution and be vigilant in the exercise of that authority. While sheriffs have the ministerial duty to implement writs of execution promptly, they are bound to discharge their duties with prudence, caution, and attention which careful men usually exercise in the management of their affairs. Sheriffs, as officers of the court upon whom the execution of a judgment depends, must be circumspect and proper in their behavior. Anything less is unacceptable because in serving the court's writs and processes and in implementing the orders of the court, sheriffs cannot afford to err without affecting the efficiency of the process of the administration of justice.

In the present case, Sheriff Cachero failed to exercise circumspection in the enforcement of the writ of execution, given the information that a TRO had already been issued by the CA enjoining him from implementing the same. This clearly evinces an intention to defy the TRO. As aptly observed by the CA:

Sheriff Cachero, being an officer of the court, should have exercised prudence by verifying whether there was really a TRO issued so as to avoid committing an act that would result in the thwarting of this Court's order. Assuming that [his] testimony that the loading of the items was completed at 4:00 p.m., and that the process server was fifteen minutes late in serving the TRO, the phone call and the presentation of the fax copy of the TRO sufficiently notified him of the Court's order which enjoined them (the Sheriffs) from carrying out the writ of execution. The fact of [his] prior actual knowledge was never refuted by him. It was also undisputed that he already knew of the existence of the TRO even before he broke the padlock of the warehouse.

In this relation, the Court does not find credence in Sheriff Cachero's insistence that while he may have "gotten wind" of the TRO through a cellular phone call, he was not bound thereby unless an official copy of the TRO was duly served upon him.

Settled is the rule that where a party has actual notice, no matter how acquired, of an injunction clearly informing him from what he must abstain, he is "legally bound from that time to desist from what he is restrained and inhibited from doing, and will be punished for a violation thereof, even though it may not have served, or may have been served on him defectively."

In view of the foregoing, the Court finds that Sheriff Cachero's open defiance of the TRO constitutes contumacious behavior falling under Section 3 (b), Rule 71 of the Rules of Court