Chua vs. China Banking Corporation

A writ of preliminary attachment under Section 1(d), Rule 57 of the Rules of Court is properly issued against a surety where the affidavit of merit sufficiently alleges facts showing that the principal debtor contracted the obligation with a preconceived plan or intention not to pay, such as misappropriation of sale proceeds and diversion of goods covered by trust receipts, and the surety's status as officer or stockholder at the time of the complaint is a matter proper for trial on the merits, not for resolution in an attachment proceeding.

Interbrand Logistics & Distribution, Inc. was a corporate entity engaged in the purchase and distribution of goods, which applied with China Banking Corporation for the issuance of Domestic Letters of Credit to finance purchases from Nestle Philippines. China Bank advanced ₱189,831,288.17 for these purchases, secured by twelve letters of credit with corresponding trust receipts. To guarantee Interbrand's obligations, two Surety Agreements were executed: the first naming Interbrand and its officers Chua, Carlos Francisco Mijares, and Almer L. Caras as sureties, and the second naming Edgar San Luis as individual surety. Under the trust receipt arrangement, Interbrand was obligated to sell the goods, remit the proceeds to China Bank, or return the goods upon maturity.

On several occasions, Interbrand Logistics & Distribution, Inc., represented by its duly authorized officer Almer L. Caras, applied with China Banking Corporation for the issuance of Domestic Letters of Credit for the purchase of goods from Nestle Philippines. China Bank approved the applications and issued twelve letters of credit with corresponding trust receipts, advancing a total of ₱189,831,288.17 in full payment of the invoice value of the goods. The goods were delivered to Interbrand's warehouses in Libis, Quezon City, Tarlac City, and Meycauayan, Bulacan. Under the trust receipts, Interbrand agreed to hold the goods in trust for China Bank, to sell them and remit the proceeds, or to return the goods on or before the maturity dates.

To secure these obligations, the parties executed two Surety Agreements. In the first, Interbrand and its officers—Gil G. Chua, Carlos Francisco Mijares, and Almer L. Caras—served as sureties; in the second, Edgar San Luis served as the individual surety. When the obligations became due, Interbrand failed to pay despite repeated demands. China Bank likewise demanded payment from the sureties, including Chua, but the latter failed and refused to pay.

On March 1, 2010, China Bank filed a Complaint for Sum of Money and Damages with Application for Issuance of a Writ of Preliminary Attachment against Chua and the other sureties before the RTC of Makati City, Branch 59. China Bank alleged that Interbrand, with the knowledge and consent of Chua and the other individuals as officers of the company, had committed acts of fraud, deceit, and gross bad faith in contracting the indebtedness, with manifest intention not to comply in good faith with their obligations under the trust receipts and surety agreements. The trial court granted the application on March 3, 2010, directing the attachment of the properties of all defendants in the amount of ₱189,831,288.17.

Chua and the other sureties moved to lift the writ, alleging that they were not debtors and thus should not be guilty of fraud in incurring the obligation. Chua supplemented the motion by arguing that he was neither an officer, director, nor stockholder of Interbrand. The trial court lifted the attachment against Chua on May 21, 2010. China Bank moved for reconsideration, presenting the Minutes of a Special Board Meeting showing Chua as one of the directors who approved the authority to obtain loans from China Bank, and a copy of the Amended Articles of Incorporation listing Chua as an incorporator. The trial court did not give credence to these documents because none indicated that during the material period—from September to December 2009—Chua was still a stockholder and director of Interbrand.

• Due Process: Petitioner claimed that the appellate court violated his right to due process when it disregarded his evidence supporting the lifting of the writ of attachment and found that he voluntarily signed the surety agreement.
• Mischaracterization of Liability: Petitioner contended that when the CA held the trial court committed grave abuse of discretion in lifting the writ, it effectively made his liability as surety conditional on his being a director, officer, or stockholder, without considering whether fraud attended the incurrence of the obligation.
• Remedy of Certiorari: Petitioner asserted that the remedy from an order lifting a writ of attachment is not certiorari but may be corrected only by appeal.

• Surety Obligation: Respondent maintained that under the surety agreement, Chua became obligated to perform the obligation of Interbrand in the trust receipts even without possessing a direct or personal interest in the obligations and despite not being a signatory to the trust receipts. Respondent argued that Chua's obligation being direct, primary, and absolute, it was as if he personally bound himself to fulfill all obligations of Interbrand in the trust receipt agreements.
• Fraud: Respondent asserted that fraud was manifested on the part of Chua when he, as a surety, was fully aware of his obligations to remit to China Bank the sale proceeds described in the trust agreement, but did not have the intention to pay. Respondent added that mere failure to comply with a trust receipt obligation is a crime.

• Propriety of Attachment: Whether the writ of preliminary attachment against the properties of Chua was properly issued and reinstated.

• Propriety of Attachment: Yes. The issuance of the writ of preliminary attachment was regular and proper on the face of the allegations in the affidavit of merit, which sufficiently demonstrated fraud in contracting the obligation under Section 1(d), Rule 57 of the Rules of Court.

• Propriety of Attachment: A writ of preliminary attachment is a provisional remedy allowing the levy of a defendant's property as security for satisfaction of any judgment. Under Section 1(d), Rule 57, attachment is available in an action against a party guilty of fraud in contracting the debt or incurring the obligation. The fraud must relate to the execution of the agreement and must have induced the other party's consent; it must be committed upon contracting the obligation sued upon. A debt is fraudulently contracted if, at the time of contracting, the debtor had a preconceived plan or intention not to pay. Crucially, fraudulent intent cannot be inferred from mere non-payment. In this case, the Joint Affidavit executed by China Bank's officers alleged that Interbrand purchased highly saleable Nestle products through the letters of credit, collected the sale proceeds within approximately two weeks, but deliberately failed to remit those proceeds to China Bank. Instead, Interbrand and its officers, with the knowledge and consent of the other defendants, misappropriated the proceeds. Furthermore, the goods were diverted to a warehouse different from those indicated in the sales invoices, preventing China Bank from monitoring compliance with the trust receipts. These allegations demonstrated a clear intent to defraud, not mere non-payment. Chua, having signed the surety agreement, bound himself to jointly and solidarily fulfill Interbrand's obligation. The question of whether he was an officer or stockholder at the time the complaint was filed would necessarily delve into the merits of the case, as China Bank sought to hold him liable under the surety agreements. Accordingly, the CA correctly reinstated the March 3, 2010 Order.

• Fraud as Ground for Preliminary Attachment (Section 1(d), Rule 57) — To sustain an attachment on the ground of fraud in contracting the debt or incurring the obligation, it must be shown that the debtor, at the time of contracting, 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. A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay. The applicant must sufficiently show the factual circumstances of the alleged fraud because fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or failure to comply with his obligation. In this case, the allegations of misappropriation of sale proceeds and diversion of goods to a different warehouse sufficiently constituted the requisite fraud.

• Surety's Solidary Liability — A surety who voluntarily signs a surety agreement binds himself to jointly and solidarily fulfill the obligation of the principal debtor. The surety's liability is direct, primary, and absolute, and is not limited to the period of his incumbency as an officer or stockholder of the principal debtor. The question of whether the surety was an officer or stockholder at the time of filing is a matter going into the merits of the main case and is improper for resolution in a proceeding for attachment.

• Discharge of Attachment — Under Sections 12 and 13, Rule 57 of the Rules of Court, attachment may be discharged in two ways: first, by posting a counter-bond or cash deposit; and second, by showing that the order of attachment was improperly or irregularly issued. In this case, Chua initially secured discharge on the second ground, but the CA found grave abuse of discretion in the trial court's lifting of the writ.

• "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[/she] would not have otherwise given." — This passage states the controlling standard for fraud as a ground for preliminary attachment under Section 1(d), Rule 57, articulating the ratio decidendi that fraudulent intent must be shown independently of mere non-payment.

• "The applicant for a writ of preliminary attachment must sufficiently show the factual circumstances of the alleged fraud because fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or failure to comply with his obligation." — This formulation distinguishes actionable fraud from simple breach, a distinction central to the Court's finding that the affidavit of merit contained sufficient allegations of fraud.

• "Suffice it to say that on the face of the allegations, the issuance of a writ of preliminary attachment is regular and proper." — This sentence captures the Court's deferential standard at the attachment stage: the writ is proper if the allegations on their face demonstrate the requisite fraud, without need of resolving factual questions that go into the merits.

• Security Bank Corporation vs. Great Wall Commercial Press Company, Inc., 804 Phil. 565 (2017) — Cited for the definition and purpose of a writ of preliminary attachment as a provisional remedy.
• Metro Inc. vs. Lara's Gifts and Decors, Inc., 621 Phil. 162 (2009) — Cited for the doctrine that fraud as a ground for attachment requires a showing that the debtor intended to defraud the creditor at the time of contracting, and that fraudulent intent cannot be inferred from mere non-payment.
• Security Pacific Assurance Corporation vs. Hon. Tria-Infante, 505 Phil. 609 (2005) — Cited for the two modes of discharging an attachment under Sections 12 and 13, Rule 57 of the Rules of Court.
• Watercraft Venture Corporation vs. Wolfe, 769 Phil. 394 (2015) — Cited for the requisites of an affidavit of merit under Section 3, Rule 57.

• Section 1(d), Rule 57, Rules of Court — Provides that a writ of preliminary attachment may issue 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. The Court found that the allegations of misappropriation and diversion of goods constituted fraud under this provision.
• Section 3, Rule 57, Rules of Court — Requires an affidavit of merit alleging: (1) a sufficient cause of action exists; (2) the case is one of those mentioned in Section 1; (3) there is no other sufficient security for the claim; and (4) the amount due is as much as the sum for which the order is granted. The Court found the Joint Affidavit satisfied these requisites.
• Sections 12 and 13, Rule 57, Rules of Court — Enumerate the two methods of discharging an attachment: by posting a counter-bond or cash deposit (Section 12), or by showing the attachment was improperly or irregularly issued (Section 13). Chua initially obtained discharge under Section 13.
• Article 315, par. 1(b), Revised Penal Code — Referenced in the Joint Affidavit as the crime allegedly committed by the defendants through misappropriation of trust receipt proceeds, constituting estafa.

Leonen (Chairperson), Inting, Delos Santos, and Rosario, JJ., concurred.