Chuidian vs. Sandiganbayan

When a writ of preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action, the defendant cannot dissolve the attachment under Section 13 of Rule 57 by disputing the factual averments on which the writ was based; the only available remedies are filing a counterbond under Section 12 or proving the writ was improperly or irregularly issued at the time of its issuance. Additionally, substitution of a debtor under Article 1293 of the Civil Code requires the creditor's consent, which cannot be presumed and which a presidential proclamation does not dispense with.

Petitioner Vicente B. Chuidian was alleged to be a dummy or nominee of Ferdinand and Imelda Marcos in several companies suspected of having been illegally acquired by the Marcos spouses. As a favored business associate, Chuidian allegedly used false pretenses to induce the officers of the Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), the Board of Investments, and the Central Bank to facilitate a US$25,000,000 loan guarantee in favor of Asian Reliability Company, Inc. (ARCI), 98% of which he allegedly owned. ARCI defaulted, compelling Philguarantee to undertake payment. A compromise agreement was executed on November 27, 1985, under which Chuidian assigned and surrendered title to all his companies in favor of the Philippine government, and Philguarantee absolved him from all civil and criminal liability; in turn, the government was to pay Chuidian US$5,300,000, with the remaining balance of US$4,600,000 payable through an irrevocable Letter of Credit (L/C No. SSD-005-85) issued by the Philippine National Bank (PNB) on December 12, 1985. After the EDSA revolution, the Presidential Commission on Good Government (PCGG) sequestered the L/C on May 30, 1986, and the Republic later filed Civil Case No. 0027 before the Sandiganbayan for reconveyance, reversion, accounting, and restitution of ill-gotten wealth against the Marcos spouses and their alleged cronies, including Chuidian.

Sometime in September 1980, Asian Relability Company, Inc. (ARCI), 98% of which was allegedly owned by Vicente B. Chuidian, was granted a loan guarantee of US$25,000,000 by Philguarantee. ARCI had represented that the loan proceeds would fund five inter-related projects in the Philippines. Instead, Chuidian invested the proceeds in United States corporations, specifically Dynetics, Inc. and Interlek, Inc. ARCI defaulted on the loan, compelling Philguarantee to make payments on it. In June 1985, Philguarantee sued Chuidian before the Santa Clara County Superior Court in California, alleging that he had violated the loan terms by defaulting and misusing the funds for personal benefit. Chuidian countered that he was himself a victim of Marcos-era plunder and had filed an action in U.S. federal court to recover companies the Marcoses had illegally taken from him.

On November 27, 1985, three months before the People Power Revolution, Philguarantee and Chuidian entered into a compromise agreement. Chuidian agreed to assign and surrender title to all his companies in favor of the Philippine government; in exchange, Philguarantee would absolve him from all civil and criminal liability and desist from pursuing any suit arising from his defaulted loans. Instead of Chuidian reimbursing Philguarantee, the government would pay him US$5,300,000. Chuidian received an initial US$500,000 and a subsequent US$200,000, leaving a balance of US$4,600,000 payable through an irrevocable Letter of Credit (L/C No. SSD-005-85) issued by PNB on December 12, 1985, from which Chuidian would draw US$100,000 monthly. Chuidian made two drawings at PNB's Los Angeles branch before the PCGG, on May 30, 1986, issued a sequestration order directing PNB to place the L/C under PCGG custody. Chuidian's name was also placed on the Department of Foreign Affairs' Hold Order list.

Philguarantee moved before the Santa Clara County Superior Court to vacate the stipulated judgment containing the settlement, alleging it was procured under duress and was grossly disadvantageous to the government. The court denied the motion, finding that Philguarantee had not carried its burden, and the Sixth Appellate District of the California Court of Appeal affirmed. Meanwhile, Chuidian filed an action against PNB in the U.S. District Court, Central District of California, seeking to compel payment on the L/C. PNB defended on grounds of illegality, international comity, and act of state. Philguarantee intervened, raising the same fraud, duress, and illegality arguments. The federal court excused PNB from payment as long as the PCGG freeze and sequestration orders remained in effect, recognizing them as acts of state, but denied Philguarantee's intervention to set aside the settlement.

On February 27, 1987, a Deed of Transfer was executed between Secretary of Finance Jaime V. Ongpin and PNB President Edgardo B. Espiritu pursuant to Presidential Proclamation No. 50, transferring certain PNB assets to the government in exchange for the government's assumption of certain PNB liabilities, including unused and deferred commercial L/Cs—among them SSD-005-85, listed under Dynetics, Inc. in favor of Chuidian in the amount of US$4,400,000. On July 30, 1987, the Republic filed Civil Case No. 0027 before the Sandiganbayan against the Marcos spouses, several former government officials, and alleged cronies including Chuidian, seeking reconveyance, reversion, accounting, and restitution of ill-gotten wealth. The complaint charged that Chuidian, by himself or in conspiracy with the Marcoses, formed corporations to hide illegally obtained assets, pillaged government financial institutions, and executed a settlement grossly disadvantageous to the government.

While the case was pending, the Republic moved on March 17, 1993 for a writ of attachment over the L/C, citing Chuidian's alleged embezzlement of ARCI funds in a fiduciary capacity, fraud in contracting the debt, disposal of property to defraud creditors, and residence outside the country. Chuidian opposed, arguing that the supporting affidavit was defective, that no fiduciary relationship existed between him and the Republic, that there was no fraud at the time of contracting, that he had not disposed of property to defraud, and that his absence did not make him a non-resident. The Sandiganbayan granted the writ on July 14, 1993, finding a prima facie case of fraud and treating Chuidian's residence abroad as the most potent ground. The order of attachment issued on July 19, 1993.

Almost four years later, on August 11, 1997, Chuidian moved to lift the attachment, arguing that he had returned to the Philippines, that there was no evidence of fraud beyond hearsay, that he had never been a defendant in any criminal prosecution, that the foreign judgments constituted res judicata, that the government had sold the assets he had surrendered without his consent, and that the government's failure to prosecute warranted dismissal for laches. He also moved to have the L/C deposited in an interest-bearing account. The Sandiganbayan denied the motion to lift attachment on November 13, 1998, but on July 13, 1999, granted the request for an interest-bearing deposit while declaring the national government as principal obligor and relieving PNB of liability. Chuidian then filed the instant petition for certiorari, contending that the Sandiganbayan committed grave abuse of discretion in denying the lifting of attachment and in relieving PNB of its obligation on the L/C.

• Supervening Change of Circumstances: Chuidian argued that his return to the Philippines eliminated the Sandiganbayan's "most potent ground" for the writ—his absence from the country—and warranted immediate lifting of the attachment.
• No Evidence of Fraud: He maintained that there was no evidence of initial fraud or subsequent concealment except the PCGG Chairman's affidavit, which was based on mere "belief and information" and constituted hearsay, as the Chairman was never presented as a witness or subjected to cross-examination.
• No Disposal of Assets to Defraud: He denied disposing of his assets to defraud the Republic and asserted that the records contained nothing supporting the Sandiganbayan's conclusion on that point.
• No Other Criminal Prosecution: He pointed out that he had never been a defendant in any criminal prosecution in the Philippines and could not have personally appeared in other actions because the government had deprived him of a travel document.
• Foreign Judgments as Res Judicata: He contended that the California state court and U.S. federal court judgments had already dealt with the allegations of fraud and wrongdoing, constituting res judicata warranting dismissal of the case itself.
• Laches and Failure to Prosecute: He argued that throughout the four years the attachment had been in effect, the government had not set the case for hearing, and that under Rule 17, Section 3, the case should be dismissed for laches, requiring the attachment to be lifted.
• Due Process and Government's Fraudulent Disposal: He stressed that the assets he had surrendered in exchange for the L/C had already been sold by the Republic without his or the Sandiganbayan's consent, meaning that allowing the attachment to continue would deprive him of property without due process while the Republic itself fraudulently disposed of assets.
• Invalid Substitution of Debtor: He contended that PNB could not be relieved of its obligation on the L/C by virtue of Presidential Proclamation No. 50, because the Deed of Transfer substituting the government as debtor was executed without his consent as creditor, contrary to Article 1293 of the Civil Code.

• Multiple Independent Grounds for Attachment: The Republic countered that Chuidian's absence was not the only ground for the attachment; the Sandiganbayan had also found a prima facie case of fraud and disposal of property with intent to defraud, so his belated appearance did not warrant lifting the writ.
• Uncertain Stay in the Country: The Republic argued that Chuidian's stay in the Philippines was uncertain because he held a foreign passport and could leave at will, making the ground under Section 1(e) of Rule 57 still applicable.
• Abdication of Jurisdiction: The Republic maintained that allowing the foreign judgments as a basis for lifting the attachment would amount to an abdication of the Sandiganbayan's jurisdiction over ill-gotten wealth cases in deference to foreign courts.
• Prior Resolution Already Addressed Verification Issue: The Republic asserted that the sufficiency of former PCGG Chairman Gunigundo's verification of the complaint had already been fairly and squarely addressed in the July 14, 1993 resolution.

• Propriety of Lifting Attachment: Whether the Sandiganbayan committed grave abuse of discretion in denying Chuidian's motion to lift the writ of preliminary attachment when the grounds raised were supervening events that did not attack the propriety of the writ's issuance.
• Res Judicata: Whether the foreign judgments cited by Chuidian constitute res judicata barring the Republic's action to recover alleged ill-gotten wealth.
• Substitution of Debtor: Whether PNB was validly relieved of its liability on the L/C through the Deed of Transfer without the creditor's consent.
• Interest-Bearing Deposit: Whether the L/C proceeds should be deposited in an interest-bearing escrow account pending judgment.

• Propriety of Lifting Attachment: No. The grounds Chuidian raised were supervening events not cognizable under Section 13 of Rule 57, which requires a defect in the very issuance of the writ; and because the writ was issued on the ground of fraud, which was also the Republic's cause of action, the merits could not be tried on a motion to dissolve.
• Res Judicata: No. The first foreign judgment was not shown to be final, as there was no evidence of a ruling by the California Supreme Court; and the second foreign judgment actually upheld the PCGG's authority to sequester the L/C, thereby strengthening the government's position.
• Substitution of Debtor: No. PNB remained liable because the Deed of Transfer did not validly substitute the government as debtor without Chuidian's consent as creditor, pursuant to Article 1293 of the Civil Code, which a presidential proclamation does not override.
• Interest-Bearing Deposit: Yes. The L/C proceeds should be deposited in an interest-bearing escrow account, as any interest earned would redound to the benefit of whichever party ultimately prevails.

• Propriety of Lifting Attachment: The Court identified only two remedies available to a defendant whose property has been attached: (a) filing a counterbond under Section 12 of Rule 57, or (b) moving to quash on the ground of improper or irregular issuance under Section 13. Chuidian chose the latter but raised supervening events—his return to the Philippines, the foreign judgments, and the government's alleged laches—that did not attack the propriety of the writ at the time of its issuance. Section 13 contemplates defects in the very issuance of the attachment, such as deceptively framed allegations or failure to state a cause of action. Moreover, the writ was issued upon the ground of fraud, which was simultaneously the Republic's cause of action in the main case. When the ground for attachment is the same as the cause of action, the defendant cannot dissolve the attachment by disputing the factual averments on which the writ was based, because doing so would be tantamount to trying the merits on a mere motion. Chuidian also failed to file a counterbond. His four-year silence before challenging the writ demonstrated indifference, and if laches attached, it was to him, not the government, which was prosecuting a case involving twenty-three defendants.

• Res Judicata: The first foreign judgment—the California Court of Appeal's affirmance of the denial of Philguarantee's motion to vacate the stipulated judgment—was not shown to be final, as the records contained no evidence of a ruling by the California Supreme Court on the petition for review. Res judicata requires that the former judgment be final. The second foreign judgment—the U.S. District Court's ruling in Chuidian's action against PNB—actually ruled in favor of PNB, holding that the PCGG freeze and sequestration orders were acts of state that must be respected and that PNB was excused from performance as long as those orders remained in effect. This strengthened the government's position that the L/C was under Philippine jurisdiction. Neither judgment therefore barred the Republic's action.

• Substitution of Debtor: Under Article 1293 of the Civil Code, novation by substituting a new debtor requires the creditor's consent, which cannot be presumed. The Deed of Transfer between PNB and the government, executed pursuant to Presidential Proclamation No. 50, transferred certain PNB liabilities to the government, including the L/C, but neither PNB nor the government secured Chuidian's consent to the substitution. While Presidential Proclamation No. 50 may constitute an "insuperable cause," it does not set aside the Civil Code provisions governing novation, which are part of the lifeblood of commerce. The Deed itself required securing creditors' approvals as a condition for its effectiveness. Since Chuidian is presumed the lawful payee-beneficiary of the L/C until the government proves otherwise, his consent was indispensable. PNB was estopped from denying its liability.

• Interest-Bearing Deposit: The Court agreed with the Sandiganbayan that interest earned on the L/C proceeds during the pendency of the litigation would benefit whichever party ultimately prevails, the Philippine government included. The proceeds were therefore ordered deposited in escrow with the Land Bank of the Philippines, earning interest at current legal bank rates, until released by the Sandiganbayan in accordance with law.

• Remedies to Discharge a Writ of Attachment — A party whose property has been attached may discharge the attachment only by: (a) filing a counterbond under Section 12 of Rule 57, whereby a cash deposit or counterbond in an amount equal to the value of the attached property secures payment of any judgment; or (b) moving to quash under Section 13 of Rule 57 on the ground that the writ was improperly or irregularly issued, which requires showing a defect in the very issuance of the writ—not supervening events arising after implementation. The Court applied this doctrine by holding that Chuidian's grounds (return to the Philippines, foreign judgments, laches) were supervening events that did not fall under Section 13, and that he failed to file a counterbond under Section 12.

• Attachment Based on the Cause of Action — When a writ of preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action—such as fraud in contracting the debt or embezzlement in a fiduciary capacity—the defendant is not allowed to dissolve the attachment under Section 13 by disputing the factual averments in the plaintiff's application and affidavits, because the hearing on such a motion would be tantamount to a trial of the merits on a mere motion. The Court applied this doctrine by holding that since fraud was both the ground for the attachment and the Republic's cause of action in Civil Case No. 0027, Chuidian could not challenge the factual basis of the writ on a motion to dissolve; the only other way to lift the writ was by counterbond, which he did not file.

• Novation by Substitution of Debtor — Under Article 1293 of the Civil Code, novation consisting in substituting a new debtor in place of the original one may be made without the knowledge or against the will of the original debtor, but not without the consent of the creditor. The creditor's consent cannot be presumed, and even a presidential proclamation does not constitute an exception to this rule. The Court applied this doctrine by holding that the Deed of Transfer, which transferred PNB's liability on the L/C to the national government, was invalid as a novation because Chuidian's consent as creditor was never secured. PNB therefore remained liable as the original debtor.

• Provisional Remedies Do Not Divest Title — Provisional remedies such as freeze orders and sequestration are not meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen, or taken over, and vest it in the sequestering agency, the government, or any other person. The Court applied this doctrine by holding that until the government successfully proves that Chuidian has no right to the L/C proceeds, he is deemed the lawful payee-beneficiary, whose consent is required for any substitution of debtor.

• "when the preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action … the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiff's application and affidavits on which the writ was based – and consequently that the writ based thereon had been improperly or irregularly issued – the reason being that the hearing on such a motion for dissolution of the writ would be tantamount to a trial of the merits of the action." — This passage articulates the controlling doctrine governing when the ground for attachment is also the cause of action, barring dissolution by disputing factual averments on a mere motion.

• "Supervening events which may or may not justify the discharge of the writ are not within the purview of this particular rule." — This sentence defines the boundary of Section 13 of Rule 57, clarifying that only defects in the very issuance of the writ—not post-issuance developments—may ground a motion to quash.

• "Novation which consists in substituting a new debtor in the place of the original one, may be made without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237." — This is the Court's quotation of Article 1293 of the Civil Code, applied to hold that the Deed of Transfer could not validly substitute the government for PNB without Chuidian's consent.

• "the provisional remedies, such as freeze orders and sequestration, were not 'meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person.'" — This passage, quoting Republic vs. Sandiganbayan, establishes that sequestration does not divest ownership, preserving Chuidian's status as presumed lawful payee-beneficiary of the L/C until the government proves otherwise.

• Republic vs. Sandiganbayan, G.R. No. 88228, 186 SCRA 864 (1990) — Followed for the principle that provisional remedies such as freeze orders and sequestration do not deprive the owner of title or rights to the property, and that the owner remains the lawful beneficiary until the government proves otherwise.
• Jopillo, Jr. vs. CA, 167 SCRA 247 (1988) — Followed for the rule that the determination of grounds to discharge a writ of attachment rests in the sound discretion of the lower courts, and that when the writ is issued upon a ground which is also the cause of action, the only way to lift it is by counterbond.
• Mindanao Savings and Loan Association, Inc. vs. CA, 172 SCRA 480 (1989) — Followed for the doctrine that when attachment is issued on a ground that is also the cause of action, the defendant cannot dissolve it by disputing factual averments, as this would tantamount to trying the merits on a mere motion.
• Casil vs. CA, 285 SCRA 264 (1998) — Followed for the requirement that res judicata demands a final judgment, applied to reject Chuidian's reliance on the California proceedings for which no final judgment by the California Supreme Court was shown.

• Sections 1(b), (c), (d), (e), Rule 57, Rules of Court — Grounds for issuance of a writ of preliminary attachment: embezzlement or fraudulent misapplication by a fiduciary; removal or disposal of property to defraud creditors; fraud in contracting the debt or incurring the obligation; and residence outside the country or service of summons by publication. The Sandiganbayan found a prima facie case under the fraud and non-residence grounds.
• Section 12, Rule 57, Rules of Court — Provides for discharge of attachment upon filing of a counterbond or cash deposit equal to the value of the attached property. Chuidian did not avail of this remedy.
• Section 13, Rule 57, Rules of Court — Provides for discharge of attachment on the ground of improper or irregular issuance. The Court held that supervening events do not fall under this section.
• Article 1293, Civil Code — Governs novation by substitution of debtor, requiring the creditor's consent. Applied to hold that the Deed of Transfer did not validly substitute the government for PNB without Chuidian's consent.
• Presidential Proclamation No. 50 — Issued December 8, 1986, authorizing the transfer of PNB assets and liabilities to the government. Held not to override Article 1293 of the Civil Code; the Deed of Transfer executed thereunder required creditors' approvals as a condition for effectiveness.
• Executive Orders Nos. 1 and 2 — Vested the PCGG with power to sequester and freeze assets suspected of being ill-gotten. The U.S. District Court recognized these orders as acts of state, excusing PNB from performance on the L/C while they remained in effect.

Davide, Jr., C.J. (Chairman), Puno, Kapunan, and Pardo, JJ., concurred.