Westmont Bank v. Funai Philippines
REITERATIONFacts
The Antecedents: Respondents Funai Philippines Corporation and Spouses Antonio and Sylvia Yutingco obtained loans from Westmont Bank (now United Overseas Bank Phils.) totaling P10,000,000.00, secured by promissory notes (PNs). The PNs stipulated that in case of referral to an attorney or suit for collection, the debtors would be liable for 20% of the total amount due as attorney's fees. Funai and the Sps. Yutingco defaulted, prompting Westmont to file a complaint for sum of money with a prayer for preliminary attachment. The Regional Trial Court (RTC) issued a writ of preliminary attachment, leading to the seizure of properties. Panamax Corporation, through its Acting President Pepito Ong Ngo, filed a third-party claim over the seized properties. Westmont amended its complaint to implead Panamax, Ngo, and others as additional defendants, alleging they were mere alter egos or dummies of the original defendants to defraud creditors. A second amended complaint added Maria Ortiz. The original defendants claimed non-payment was due to Westmont's "treacherous manipulation." The additional defendants moved to dismiss, asserting no legal tie to Westmont and lack of cause of action. A public auction of seized properties yielded P1,030,000.00. Procedural History: The RTC, in its June 20, 2001 Decision, declared the original defendants jointly and severally liable for P10,000,000.00 less the auction proceeds, plus legal interest. However, it dismissed the amended complaints against the additional defendants for failure to state a cause of action, ordering the return of seized items. Westmont's motion for reconsideration was denied. Westmont appealed this dismissal (CA-G.R. CV No. 71933). Meanwhile, the additional defendants moved for execution pending appeal to return the seized items, which the RTC granted via its July 17, 2001 Execution Order. Westmont refused to comply, leading to a July 23, 2001 Execution Order. Westmont filed a petition for certiorari with prayer for TRO/injunction (CA-G.R. SP. No. 65785) to prevent implementation. The CA issued a TRO on July 26, 2001. Despite service of the TRO via facsimile and later a duplicate original copy, Sheriff Carmelo V. Cachero proceeded with the execution, allowing seized items to be loaded onto a truck. A case for indirect contempt was filed against Sheriffs Cachero and Duncan, and Ngo (CA-G.R. SP. No. 66410), consolidated with the certiorari petition. The Petition: Westmont filed a petition for review on certiorari (G.R. No. 175733) assailing the CA's affirmation of the dismissal of its claims against the additional defendants and the award of attorney's fees. Sheriff Cachero filed a petition for review on certiorari (G.R. No. 180162) assailing his conviction for indirect contempt.
Issue(s)
Whether the amended and second amended complaints stated a cause of action against the additional defendants. Whether the CA erred in awarding attorney's fees at five percent (5%) of the principal amount. Whether Westmont is entitled to exemplary damages. Whether Sheriff Carmelo V. Cachero was guilty of indirect contempt for proceeding with the execution despite knowledge of the TRO.
Ruling
The petitions are denied. The Court affirms the CA's decision dismissing the claims against the additional defendants, awarding attorney's fees at five percent (5%) of the principal amount, and holding Sheriff Carmelo V. Cachero guilty of indirect contempt.
Ratio Decidendi
On the failure to state a cause of action against additional defendants: The Court reiterated the distinction between "failure to state a cause of action" and "lack of cause of action." It held that the amended and second amended complaints failed to state a cause of action because they did not proffer ultimate facts warranting an action against the additional defendants. The allegations that the additional defendants were mere "alter egos, conduits, dummies or nominees" were considered mere conclusions of law, unsupported by specific averments of circumstances showing why or how these conclusions were reached. This failure to state ultimate facts, as required by Section 5, Rule 8 of the Rules of Court for averments of fraud, rendered the allegations insufficient to establish a basis for the court to act or for the defendants to meet the claim with an intelligent answer. Therefore, the dismissal of the complaints against them was proper. On the award of attorney's fees: The Court affirmed the CA's reduction of attorney's fees from the stipulated 20% to 5% of the principal amount. It explained that the stipulation on attorney's fees in the PNs constituted a penal clause, serving as liquidated damages. While such stipulations are generally binding, courts possess the power to reduce the amount if it is iniquitous or unconscionable. Given that the interest alone had ballooned to more than thrice the principal amount, the stipulated 20% attorney's fees, amounting to approximately P8,400,000.00, was deemed manifestly exorbitant. The reduction to 5% was found to be reasonable under the circumstances. On exemplary damages: The Court denied Westmont's claim for exemplary damages, finding no factual or legal basis for such an award. A review of the complaints revealed no specific averments demonstrating wanton, fraudulent, reckless, oppressive, or malevolent acts committed by the original defendants concerning the loan obligation. Exemplary damages require a showing of such aggravating circumstances, which were absent in the allegations presented. On indirect contempt: The Court found Sheriff Carmelo V. Cachero guilty of indirect contempt. It emphasized that sheriffs, as officers of the court, must exercise prudence and circumspection in implementing writs. Sheriff Cachero's act of proceeding with the execution despite having actual notice of the TRO, even if acquired through phone calls or facsimile copies, demonstrated a clear intention to defy the CA's order. The Court reiterated the settled rule that actual notice of an injunction, regardless of how it was acquired, binds the party. His prior knowledge of the TRO, even before breaking the padlock of the warehouse, and his failure to rectify his actions upon receiving a copy of the TRO, constituted contumacious behavior punishable by fine.
Main Doctrine
A complaint fails to state a cause of action if it does not proffer ultimate facts warranting an action against the defendants, relying instead on mere conclusions of law unsupported by specific averments of circumstances. Furthermore, a party with actual notice of a TRO is bound by it, regardless of the mode of acquisition of such notice.