Metropolitan Bank and Trust Company vs. International Exchange Bank

A creditor’s complaint-in-intervention that seeks rescission of contracts on the ground of fraud in creditors’ rights is an accion pauliana and, as a subsidiary remedy, cannot be maintained unless the creditor has first exhausted the debtor’s properties and subrogated itself to the debtor’s transmissible rights.
A stranger to an action who has a legal interest in the res—such as a lessee of property subject of litigation—may be permitted to intervene pro interesse suo to assert a property right without becoming a formal party or controlling the litigation, provided the intervention does not unduly delay or prejudice the adjudication of the principal claims.

Sacramento Steel Corporation (SSC) operated a steel manufacturing plant in Tagoloan, Misamis Oriental. To fund its operations, SSC obtained an omnibus credit line and loans from International Exchange Bank (IEB) secured by five chattel mortgages over various plant equipment. SSC defaulted, and IEB’s demand for payment went unheeded. IEB sued for injunction and later for replevin to prevent removal of the mortgaged equipment, while SSC filed its own action for annulment of the mortgages and specific performance to compel loan restructuring. The cases were consolidated. The trial court issued a writ of replevin but suspended its implementation; it also prohibited commercial operation without court approval. Amidst the proceedings, SSC entered into a Capacity Lease Agreement with Chuayuco Steel Manufacturing (CSMC) allowing CSMC to lease and operate the cold rolling mill and galvanizing plant. Meanwhile, Metropolitan Bank and Trust Company (Metrobank), another creditor of SSC, sought to intervene to rescind the chattel mortgages, alleging they were executed to defraud SSC’s creditors. CSMC likewise moved to intervene to secure court permission to operate the plant. The trial court admitted both interventions. The Court of Appeals nullified those orders, prompting the present petitions.

• The Loan and Chattel Mortgages: SSC obtained a ₱60‑million omnibus credit line, a ₱20‑million loan, and a further credit line of up to ₱100 million from IEB under a Credit Agreement dated September 10, 2001. As security, SSC executed five chattel mortgages over equipment in its Tagoloan steel plant, dated between September 17, 2001 and June 7, 2004. SSC later defaulted and failed to heed IEB’s demand for payment.

• The RTC Proceedings: On July 7, 2004, IEB filed an action for injunction (Civil Case No. 2004‑197) to prevent SSC from removing the mortgaged equipment, and later a supplemental complaint for replevin or, alternatively, for payment of the outstanding loans and attorney’s fees. On July 18, 2004, SSC filed a complaint for annulment of mortgage and specific performance (Civil Case No. 2004‑200) seeking restructuring of its obligations and a temporary restraining order to stop IEB from foreclosing. The cases were consolidated. The RTC issued a writ of replevin in IEB’s favor but, upon agreement of the parties, suspended its implementation and prohibited commercial operation without court approval. Amidst SSC’s opposition, IEB filed a petition for extrajudicial foreclosure of chattel mortgage; the RTC responded with an Order dated September 6, 2004, enjoining IEB and its agents from conducting any foreclosure and from dispossessing SSC of the plant equipment pending resolution of the case.

• The Capacity Lease Agreement: On August 30, 2004, SSC entered into a five‑year Capacity Lease Agreement with CSMC, under which CSMC would lease and operate SSC’s cold rolling mill and galvanizing plant.

• Metrobank’s Motion for Intervention: On October 21, 2004, Metrobank, as a creditor of SSC, moved to intervene, alleging that the chattel mortgages between IEB and SSC were executed to defraud SSC’s other creditors. Metrobank prayed for the rescission of the chattel mortgages and sought exemplary damages and attorney’s fees.

• CSMC’s Motion for Intervention: On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for authority to immediately operate the plant under the Capacity Lease Agreement. CSMC asserted that its interest was based on the lease contract.

• RTC Orders Admitting Interventions: In its Order of February 14, 2005, the RTC admitted the motions for intervention of both Metrobank and CSMC. A Resolution of March 15, 2005 allowed the machineries to be operated pendente lite. The Joint Resolution of June 8, 2005 reiterated the admission of CSMC’s intervention and directed CSMC to file its complaint‑in‑intervention.

• CA Proceedings: IEB assailed the foregoing orders before the Court of Appeals via a petition for certiorari, prohibition, and mandamus. The CA found that the RTC committed grave abuse of discretion in allowing the interventions and annulled the orders of September 6, 2004, February 14, 2005, March 15, 2005, and June 8, 2005, further directing the turnover of the mortgaged properties to IEB for foreclosure. Metrobank, CSMC, and SSC moved for reconsideration, but the CA denied the motions.

Metrobank (G.R. No. 176008)

• Accion Pauliana: Metrobank argued that its complaint-in-intervention was not an accion pauliana. It contended that a chattel mortgage does not involve a conveyance of property and that an accion pauliana presupposes an unsatisfied judgment—an element that was absent. Consequently, the CA erred in denying intervention on the ground that the action was subsidiary.

• Grave Abuse of Discretion: Metrobank maintained that the RTC did not commit grave abuse of discretion in admitting its intervention because its interest, as a creditor allegedly defrauded by the mortgages, was direct and material.

CSMC (G.R. No. 176131)

• Forum Shopping: CSMC argued that IEB was forum shopping because it filed a petition for certiorari to enjoin the commercial operation of the machinery while its Opposition to the implementation of the Capacity Lease Agreement was still pending before the RTC.

• Failure to File Motion for Reconsideration: CSMC contended that IEB’s failure to file a motion for reconsideration of the RTC’s June 8, 2005 Joint Resolution before resorting to certiorari was fatal to its petition.

• Lack of Legal Basis for Intervention: CSMC asserted that the CA erred in ruling that the RTC’s order admitting its intervention had no legal basis. As the lessee of the subject equipment, CSMC possessed a direct and material legal interest in the property and should be allowed to intervene to protect its rights under the lease.

• Metrobank’s Intervention as Accion Pauliana: Respondent IEB countered that Metrobank’s complaint‑in‑intervention, which prayed for rescission of chattel mortgages on the ground of fraud, was undisputedly an accion pauliana. As a subsidiary remedy, it could not be maintained because Metrobank had not exhausted the debtor’s other properties or subrogated to the debtor’s rights.

• CSMC’s Lack of Legal Interest and Improper Intervention: IEB argued that CSMC, as a mere lessee, lacked a legal interest in the main suit between creditor and debtor over the loan obligations and the foreclosure of security. The proper remedy for CSMC was a separate proceeding; its intervention would unduly delay the resolution of the principal action.

• Absence of Forum Shopping and Justification for Direct Certiorari: IEB contended that no forum shopping occurred because its Opposition in the trial court and its certiorari petition in the CA involved different subject matter, causes of action, and reliefs. Regarding the absence of a motion for reconsideration, IEB maintained that the issue raised—the applicability of the rule on intervention—was a pure question of law that fell within the recognized exceptions to the general rule.

• Metrobank’s Intervention (Accion Pauliana): Whether Metrobank’s complaint-in-intervention seeking rescission of chattel mortgages is an accion pauliana that cannot be allowed without prior exhaustion of the debtor’s properties and subrogation to the debtor’s rights.

• CSMC’s Intervention (Legal Interest of Lessee): Whether the CA correctly disallowed CSMC’s intervention, given its status as a lessee of the machinery subject of the litigation.

• Forum Shopping: Whether IEB committed forum shopping by filing a certiorari petition while its opposition to the Capacity Lease Agreement remained pending before the trial court.

• Motion for Reconsideration before Certiorari: Whether IEB’s failure to file a prior motion for reconsideration of the RTC’s June 8, 2005 Joint Resolution was fatal to its certiorari petition.

• Metrobank’s Intervention (Accion Pauliana): Metrobank’s complaint-in-intervention, which sought the rescission of chattel mortgages on the ground that they were executed in fraud of creditors, was correctly characterized as an accion pauliana. The Civil Code and jurisprudence require that before a creditor may bring such a rescission action, three successive measures must be exhausted: (1) levy upon all non-exempt property of the debtor; (2) exercise the debtor’s transmissible rights through accion subrogatoria; and (3) seek rescission of the fraudulent contracts. The action is subsidiary, available only as a last resort. Metrobank neither alleged nor proved that it had exhausted SSC’s other properties or subrogated to SSC’s rights before filing its intervention. The contention that a chattel mortgage involves no conveyance of a patrimonial benefit was rejected; a mortgage bestows a patrimonial benefit by securing the creditor’s credit. Accordingly, the RTC gravely abused its discretion in admitting Metrobank’s intervention, and the CA committed no error in so ruling.

• CSMC’s Intervention (Legal Interest of Lessee): CSMC’s motion for intervention should have been allowed. Intervention under Rule 19 requires that the intervenor possess a legal interest in the matter in litigation, and that the intervention will not unduly delay or prejudice the adjudication of the original parties’ rights. As the lessee of the equipment under the Capacity Lease Agreement, CSMC had an actual, material, direct, and immediate legal interest: any judgment disposing of the machinery would directly affect its possession and operation. Its claim was properly treated as an intervention pro interesse suo—a mode where a stranger asserts a property right in the res without becoming a formal plaintiff or defendant and without controlling the litigation. The CA erred in applying Rule 3, Section 19 on substitution of parties; CSMC was not a transferee of SSC’s entire interest in the loan litigation, but only a lessee with a limited interest in the equipment. Its participation would not unduly delay the main case.

• Forum Shopping: No forum shopping was committed. IEB’s Opposition in the RTC questioned the legality of the Capacity Lease Agreement and sought to prevent its implementation; the certiorari petition in the CA, on the other hand, assailed the RTC orders allowing operation of the machinery pendente lite. The two proceedings involved different subject matter, causes of action, and reliefs. There was no identity of those elements, nor would a judgment in one constitute res judicata in the other.

• Motion for Reconsideration before Certiorari: Although the general rule requires a motion for reconsideration before certiorari may be resorted to, the requirement is excused when the issue raised is purely one of law. The question of whether the trial court correctly allowed CSMC’s intervention under the Rules of Court is a pure question of law. Hence, IEB’s failure to file a motion for reconsideration of the June 8, 2005 Joint Resolution was not fatal to its certiorari petition.

• Accion Pauliana (Subsidiary Nature) — An action to rescind contracts in fraud of creditors under Articles 1381 and 1383 of the Civil Code is subsidiary; it cannot be instituted unless the creditor has no other legal means to obtain reparation. Three successive measures must be taken: (1) exhaustion of the debtor’s non-exempt properties by attachment and execution; (2) subrogation to the debtor’s transmissible rights (accion subrogatoria); and (3) rescission of the fraudulent contracts (accion pauliana). A chattel mortgage involves a patrimonial benefit and may be the subject of an accion pauliana. Applied to bar Metrobank’s intervention that failed to allege or prove the prior exhaustion of remedies.

• Intervention (Rule 19, Rules of Court) — To warrant intervention, the movant must establish: (1) a legal interest in the matter in litigation that is actual, material, direct, and immediate; and (2) that the intervention will not unduly delay or prejudice the rights of the original parties, and the intervenor’s claim cannot be properly adjudicated in a separate proceeding. The purpose is to enable a stranger to protect an interest and to avoid multiplicity of suits.

• Intervention Pro Interesse Suo — A stranger may intervene in equity to assert a proprietary right in the res or subject matter of the litigation without becoming a formal plaintiff or defendant and without acquiring control over the course of the litigation. Applied to allow CSMC, as lessee, to intervene solely to protect its lease rights over the machinery.

• Forum Shopping — Forum shopping exists when there is identity of parties (or of interests), rights or causes of action, and reliefs sought in two or more pending cases, such that a judgment in one would amount to res judicata in another. The defense failed because the RTC opposition and the CA certiorari petition involved distinct subject matter and issues.

• Motion for Reconsideration before Certiorari — Purely Legal Question Exception — A prior motion for reconsideration is not required before filing a petition for certiorari when the issue raised is purely one of law, among other recognized exceptions. The propriety of CSMC’s intervention was classified as a pure question of law, excusing the absence of a motion for reconsideration.

• “Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).” — These requisites determine the subsidiary character of the remedy and were applied to bar Metrobank’s premature intervention.

• “The purpose of intervention is to enable a stranger to an action to become a party in order for him to protect his interest and for the court to settle all conflicting claims. Intervention is allowed to avoid multiplicity of suits more than on due process considerations.” — The Court used this rationale to reinstate CSMC’s intervention as a means of efficiently resolving all interests in the machinery.

• “To warrant intervention under Rule 19 of the Rules of Court, two requisites must concur: (1) the movant has a legal interest on the matter in litigation; and (2) intervention must not unduly delay or prejudice the adjudication of the rights of the parties, nor should the claim of the intervenor be capable of being properly decided in a separate proceeding.” — This formulation was relied upon to distinguish CSMC’s permissible intervention from Metrobank’s improper one.

• “CSMC’s intervention should be treated as one pro interesse suo which is a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the course of a litigation.” — This doctrine justified the limited scope of CSMC’s participation.

• Lee v. Bangkok Bank Public Company, Limited, G.R. No. 173349, February 9, 2011 — Cited for the proposition that a mortgage involves a conveyance of a patrimonial benefit and that an accion pauliana may be directed against it. Followed and applied.

• Khe Hong Cheng v. Court of Appeals, G.R. No. 144169, March 28, 2001 — Enumerated the three successive measures a creditor must take before bringing an accion pauliana. Applied to hold that Metrobank’s intervention was premature.

• Office of the Ombudsman v. Sison, G.R. No. 185954, February 16, 2010 — Stated the two requisites for intervention under Rule 19. Used as the controlling standard for evaluating CSMC’s motion.

• Firestone Ceramics Inc. v. CA, 313 SCRA 522 — Recognized that intervention is permissive and may be allowed when the applicant satisfies the requirements of the law. Cited by the trial court and implicitly endorsed.

• Perez v. Court of Appeals, G.R. No. 107737, October 1, 1999 — Defined intervention pro interesse suo. Applied to characterize CSMC’s role in the litigation.

• Article 1381, Civil Code — Classifies an accion pauliana as an action for rescission of contracts entered into in fraud of creditors. The Court used this provision to identify the nature of Metrobank’s complaint-in-intervention.

• Article 1383, Civil Code — Declares that the action for rescission is subsidiary and cannot be instituted except when the party suffering damage has no other legal means to obtain reparation. Applied to bar Metrobank’s claim because it failed to exhaust preliminary remedies.

• Rule 19, Rules of Court (Intervention) — Governs the requisites for intervention: existence of a legal interest and absence of undue delay or prejudice. The Court applied this rule to both Metrobank and CSMC: Metrobank was disallowed because its remedy was improper; CSMC was allowed because it met the rule’s conditions.

• Rule 3, Section 19, Rules of Court (Transfer of Interest) — The CA erroneously relied on this provision to require substitution of parties. The Court clarified that a mere lessee like CSMC is not a transferee of interest in the entire action and therefore substitution was not the appropriate mechanism.

Antonio T. Carpio, Presbitero J. Velasco, Jr., Arturo D. Brion, and Maria Lourdes P. A. Sereno, JJ., all designated as additional members, concurred.