Ching vs. Court of Appeals

A conjugal partnership is not liable for a husband's suretyship obligation absent proof of direct benefit to the family, as acting as a surety is not an exercise of an industry or profession, and indirect or speculative advantages do not constitute the benefit contemplated by law.

Philippine Blooming Mills Company, Inc. (PBMCI) obtained loans from Allied Banking Corporation (ABC), secured by a continuing guaranty executed by its Executive Vice-President, Alfredo Ching, and others. Upon PBMCI's default, ABC filed a collection suit and secured a writ of preliminary attachment against Ching. The sheriff levied 100,000 shares of Citycorp Investment Philippines registered in Ching's name. Ching's wife, Encarnacion, filed a motion to set aside the levy, asserting that the shares were conjugal property and that the suretyship obligation did not benefit the conjugal partnership.

• Loans and Guaranty: PBMCI obtained a ₱9,000,000 loan from ABC in 1978, evidenced by a promissory note signed by Alfredo Ching as Executive Vice-President. As added security, Alfredo Ching, Emilio Tañedo, and Chung Kiat Hua executed a continuing guaranty binding themselves jointly and severally to guarantee PBMCI's obligations up to ₱38,000,000. PBMCI later obtained another loan of ₱13,000,000 in 1979.
• Default and Attachment: PBMCI defaulted on its loans. ABC filed a complaint for sum of money with a prayer for preliminary attachment, impleading the sureties. The trial court initially denied the application but granted it upon reconsideration, issuing a writ against Alfredo Ching upon ABC's posting of a bond. The sheriff levied 100,000 common shares of Citycorp Investment Philippines registered in Ching's name.
• Suspension of Proceedings: PBMCI and Ching filed a petition for suspension of payments with the SEC. The trial court suspended proceedings against PBMCI but directed the individual defendants, including Ching, to file their answers.
• Motion to Set Aside Levy: Encarnacion Ching filed a motion to set aside the levy, claiming the Citycorp shares were acquired during the marriage using conjugal funds and that the suretyship obligation did not benefit the conjugal partnership. ABC opposed, arguing Encarnacion lacked personality to file the motion and that the shares belonged exclusively to Alfredo.

• Third-Party Claimant's Remedy: Petitioner Encarnacion Ching maintained that, though not a party to the case, she had the right to file a motion to quash the levy in the main case rather than being compelled to file a separate suit.
• Presumption of Conjugal Nature: Petitioners argued that the source of funds is not controlling when invoking the presumption of conjugal nature under Article 160 of the Civil Code; the presumption subsists even if the property is registered solely in the name of the husband.
• No Benefit to Conjugal Partnership: Petitioners asserted that the suretyship obligation was not contracted in the pursuit of the husband's profession or business, and the conjugal partnership was not benefited thereby.
• Void Suretyship: Petitioners contended that under Article 125 of the Family Code, the husband's gratuitous suretyship is void ab initio, and the wife's share in the conjugal partnership remains inchoate until dissolution.

• Lack of Personality: Respondent ABC countered that Encarnacion Ching was not a party to the case and did not file a motion for intervention; her motion could not be treated as a third-party claim under the Rules of Court.
• Exclusive Ownership: Respondent alleged, relying on Wong v. Intermediate Appellate Court, that the source of funds must be proven to establish conjugal ownership, and registration solely in the husband's name indicates exclusive ownership.
• Business Pursuit: Respondent argued, citing Cobb-Perez v. Lantin and G-Tractors, Inc. v. Court of Appeals, that the continuing guaranty was executed in pursuit of the husband's profession or business, making the conjugal partnership liable under Article 161 of the Civil Code.
• Inchoate Right: Respondent maintained that the wife's right to a share in the conjugal partnership property is merely inchoate before the dissolution of the partnership, denying her the right to file the motion to quash.

• Third-Party Claim: Whether the petitioner-wife has the right to file a motion to quash the levy on attachment in the same case despite not being a party thereto.
• Grave Abuse of Discretion: Whether the RTC committed grave abuse of discretion amounting to excess or lack of jurisdiction in issuing the orders lifting the writ of preliminary attachment.

• Third-Party Claim: A third person whose property was erroneously levied may invoke the superior authority of the court that authorized the execution in the same case. The court may conduct a summary hearing to determine if the sheriff acted correctly, without passing upon the title with finality. This remedy is cumulative with the filing of a separate action or an affidavit of third-party claim (terceria).
• Grave Abuse of Discretion: The RTC did not commit grave abuse of discretion. The CA erred in setting aside the RTC orders because the shares of stock were presumed conjugal, and the conjugal partnership was not liable for the suretyship obligation. Properties acquired during the marriage are presumed conjugal under Article 160 of the Civil Code, and registration solely in the husband's name does not constitute proof of exclusive ownership. The burden to prove that the shares were acquired with the husband's exclusive funds lies with the party asserting it. Furthermore, signing as a surety is not an exercise of an industry or profession. For the conjugal partnership to be liable, there must be a showing that some advantages accrued to the spouses. The benefits must be directly resulting from the loan, not merely a by-product or spin-off such as career enhancement or stock appreciation.

• Presumption of Conjugal Nature — All properties acquired during the marriage are presumed to belong to the conjugal partnership unless proven exclusively belonging to the husband or wife. The presumption subsists even when the manner of acquisition does not appear or when the property is registered solely in the name of one spouse. The burden to prove exclusive ownership lies with the party asserting it.
• Liability of Conjugal Partnership for Suretyship Obligations — The conjugal partnership is not liable for a suretyship obligation entered into by the husband absent proof of direct benefit to the family. Signing as a surety is not an exercise of an industry or profession. The benefit contemplated by law must be directly resulting from the loan or obligation, not merely an indirect or speculative advantage such as career enhancement or appreciation of corporate shares.
• Remedies of a Third-Party Claimant in Attachment — A third person whose property is erroneously levied by the sheriff may invoke the authority of the court in the same case via a motion to determine the propriety of the levy. This remedy is cumulative with the remedy of tercera (filing an affidavit of title) and the filing of a separate action to nullify the levy with damages.

• "For the conjugal partnership to be liable for a liability that should appertain to the husband alone, there must be a showing that some advantages accrued to the spouses. Certainly, to make a conjugal partnership responsible for a liability that should appertain alone to one of the spouses is to frustrate the objective of the New Civil Code to show the utmost concern for the solidarity and well being of the family as a unit."
• "The benefits must be those directly resulting from the loan. They cannot merely be a by-product or a spin-off of the loan itself."

• Ayala Investment and Development Corp. v. Court of Appeals — Controlling precedent. Established that signing as a surety is not an exercise of an industry or profession, and the conjugal partnership is not liable absent proof of direct benefit. Distinguished from cases where the husband contracts obligations for his own business, where benefit is presumed.
• Wong v. Intermediate Appellate Court — Followed. He who claims that property acquired during the marriage is not conjugal but belongs exclusively to one spouse is burdened to prove the source of the money utilized to purchase the same.
• Ong v. Tating — Followed. Established that a third person whose property is erroneously levied may invoke the court's authority in the same case to question the sheriff's actions.
• Cobb-Perez v. Lantin and G-Tractors, Inc. v. Court of Appeals — Distinguished. The husbands in those cases contracted the obligation for their own business, which presumes benefit to the conjugal partnership, unlike a mere suretyship.

• Article 160, New Civil Code — Provides the presumption that all properties acquired during the marriage belong to the conjugal partnership unless proven to be exclusive. Applied to presume the conjugal nature of the shares of stock registered in the husband's name.
• Article 161(1), New Civil Code (now Article 121[2 and 3], Family Code) — Enumerates the liabilities of the conjugal partnership, including debts contracted for the benefit of the conjugal partnership. Interpreted to exclude suretyship obligations that do not directly benefit the family.

Puno (Chairman), Quisumbing, Austria-Martinez, Tinga