Philippines Bank of Communications vs. Court of Appeals

A writ of preliminary attachment cannot be issued on general averments that merely quote the provisions of Rule 57; the applicant must establish the grounds relied upon with specific factual allegations, and the trial court must conduct a hearing to determine the truthfulness of the allegations. Fraud as a ground for attachment must relate to the execution of the agreement and must show a preconceived plan or intention not to pay at the time of contracting the obligation.

Philippine Bank of Communications (petitioner) extended credit to Filipinas Textile Mills, Inc. (private respondent) through irrevocable letters of credit and trust receipts, with Bernardino Villanueva and Sochi Villanueva as sureties. The trust receipts created a fiduciary relationship between the bank and the entrustee, the violation of which is qualified by law as constituting estafa under Section 13 of P.D. 115. The dispute arose from the bank's attempt to avail of the provisional remedy of preliminary attachment under Section 1(b) and (d), Rule 57 of the Revised Rules of Court, which requires a stricter showing than mere reproduction of the rule's language.

Philippine Bank of Communications filed a Complaint on April 8, 1991, against Bernardino Villanueva, Filipinas Textile Mills, Inc., and Sochi Villanueva (now deceased) before the Regional Trial Court of Manila, seeking payment of P2,244,926.30 representing the proceeds or value of various textile goods. The purchase of these goods was covered by irrevocable letters of credit and trust receipts executed by petitioner with Filipinas Textile Mills as obligor, which in turn were covered by surety agreements executed by Bernardino Villanueva and Sochi Villanueva. In their Answer, private respondents admitted the existence of the surety agreements and trust receipts but countered that they had already made payments on the amount demanded and that the interest and other charges imposed by petitioner were onerous.

On May 31, 1993, petitioner filed a Motion for Attachment, contending that violation of the trust receipts law constitutes estafa, thus providing ground for the issuance of a writ of preliminary attachment under paragraphs "b" and "d," Section 1, Rule 57 of the Revised Rules of Court. Petitioner further claimed that attachment was necessary since private respondents were disposing of their properties to its detriment as a creditor, and offered to post a bond for the issuance of such writ. The Motion stated that the case was based on the failure of defendants as entrustees to pay or remit the proceeds of the goods entrusted, nor to return the goods, in violation of their fiduciary duty; that under Section 13 of P.D. 115, violation of the trust receipts law constitutes estafa punishable under Article 315 par. 1(b) of the Revised Penal Code; and that there existed valid grounds for attachment under Section 1(b) and (d), Rule 57.

The supporting Affidavit of Domingo S. Aure, Assistant Manager for Central Collection Units Acquired Assets Section of petitioner, merely stated that he had read and understood the contents of the motion which were true and correct of his own knowledge; that there existed sufficient cause of action against the defendants; that the case was one of those mentioned in Section 1 of Rule 57; and that there was no other sufficient security for the claim sought to be enforced. The Motion was duly opposed by private respondents, and after petitioner filed a Reply, the lower court issued its August 11, 1993 Order for the issuance of a writ of preliminary attachment, conditioned upon the filing of an attachment bond.

Following the denial of the Motion for Reconsideration filed by Filipinas Textile Mills, both private respondents filed separate petitions for certiorari before the Court of Appeals assailing the order granting the writ. Private respondents claimed that out of the total P419,613.96 covered by the subject trust receipts, the amount of P400,000.00 had already been paid, leaving only P19,613.96 as balance. They also refuted the allegations of fraud, embezzlement, and misappropriation by averring that Filipinas Textile Mills could not have done these as it had ceased its operations starting in June of 1984 due to a workers' strike.

• Sufficiency of Grounds: Petitioner argued that the Court of Appeals erred in holding that there was no sufficient basis for the issuance of the writ of preliminary attachment in spite of the allegations of fraud, embezzlement, and misappropriation of the proceeds or goods entrusted to the private respondents.
• Fiduciary Duty Violation: Petitioner maintained that the failure of Filipinas Textile Mills and Villanueva to remit the proceeds or return the goods entrusted, in violation of their fiduciary duty as entrustees, constitutes embezzlement or misappropriation which is a valid ground for the issuance of a writ of preliminary attachment.

• Substantial Payments: Private respondents countered that they had already made payments on the amount demanded, specifically alleging that out of the total P419,613.96 covered by the subject trust receipts, P400,000.00 had already been paid, leaving only P19,613.96 as balance.
• Onerous Charges: Private respondents argued that the interest and other charges imposed by petitioner were onerous.
• Cessation of Operations: Private respondents refuted the allegations of fraud, embezzlement, and misappropriation by averring that Filipinas Textile Mills could not have done these as it had ceased its operations starting in June of 1984 due to a workers' strike.

• Sufficiency of Grounds for Attachment: Whether the Court of Appeals erred in holding that there was no sufficient basis for the issuance of the writ of preliminary attachment despite the allegations of fraud, embezzlement, and misappropriation.
• Fiduciary Duty Violation as Ground: Whether the failure of private respondents to remit the proceeds or return the goods entrusted, in violation of their fiduciary duty as entrustees, constitutes embezzlement or misappropriation which is a valid ground for the issuance of a writ of preliminary attachment.
• Requirement of Hearing: Whether the lower court committed grave abuse of discretion in not conducting a hearing on the application for a writ of preliminary attachment.

• Sufficiency of Grounds for Attachment: No. The Motion for Attachment and its supporting affidavit did not sufficiently establish the grounds relied upon; they contained mere general averments that failed to allege specific facts showing how the fraud was committed.
• Fiduciary Duty Violation as Ground: No. While violation of the trust receipts law is qualified by law as constituting estafa, it does not follow that a writ of attachment can and should automatically issue; the grounds under Section 1(b) and (d), Rule 57 must be established with particularity.
• Requirement of Hearing: Yes. The lower court should have conducted a hearing and required petitioner to substantiate its allegations of fraud, embezzlement, and misappropriation, in accordance with due process.

• Sufficiency of Grounds for Attachment: The Court agreed with the Court of Appeals in CA-G.R. SP No. 32863 that the Motion for Attachment and its supporting affidavit did not sufficiently establish the grounds relied upon. The Motion merely reproduced the language of Section 1(b) and (d), Rule 57 without providing specific factual allegations. The supporting Affidavit of Domingo S. Aure was even less instructive, as it lacked particulars upon which the court could discern whether or not a writ of attachment should issue. An order of attachment cannot be issued on a general averment, such as one ceremoniously quoting from a pertinent rule.

• Fiduciary Duty Violation as Ground: The Court noted that petitioner anchored its application upon Section 1(d), Rule 57, which requires that the debtor, in contracting the debt or incurring the obligation, intended to defraud the creditor. Citing Liberty Insurance Corporation vs. Court of Appeals, the Court explained that 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 would not have otherwise given. A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay. The Court found an absence of factual allegations as to how the fraud alleged by petitioner was committed. Fraudulent intent not to honor the admitted obligation cannot be inferred from the debtor's inability to pay or to comply with the obligations. In fact, private respondents alleged that out of the total P419,613.96 covered by the subject trust receipts, P400,000.00 had already been paid, leaving only P19,613.96 as balance. Hence, it could hardly be said that private respondents harbored a preconceived plan or intention not to pay petitioner.

• Requirement of Hearing: The Court agreed with the Court of Appeals in CA-G.R. SP No. 32762 that the lower court should have conducted a hearing and required petitioner to substantiate its allegations. Citing D.P. Lub Oil Marketing Center, Inc. vs. Nicolas, the Court emphasized that there is a necessity of giving the private respondents an opportunity to ventilate their side in a hearing, in accordance with due process, in order to determine the truthfulness of the allegations. No hearing was afforded to the private respondents, the writ having been issued ex parte. The Court noted that private respondents claimed that substantial payments were made on the proceeds of the trust receipts sued upon and that Filipinas Textile Mills had ceased its operations starting in June of 1984 due to a workers' strike. These matters should have been addressed in a preliminary hearing to guide the lower court to a judicious exercise of its discretion regarding the attachment prayed for.

The Court further emphasized that the rules on the issuance of a writ of attachment must be construed strictly against the applicants because the remedy of attachment is harsh, extraordinary, and summary in nature. If all the requisites for the granting of the writ are not present, then the court which issues it acts in excess of its jurisdiction.

• Fraud as Ground for Attachment — To sustain attachment under Section 1(d), Rule 57, 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 would not have otherwise given. A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay. Fraud is a state of mind and need not be proved by direct evidence but may be inferred from the circumstances attendant in each case. In this case, the Court found an absence of factual allegations showing how the fraud was committed, and fraudulent intent could not be inferred from the debtor's inability to pay, especially where substantial payments had already been made.

• Strict Construction of Attachment Rules — The rules on the issuance of a writ of attachment must be construed strictly against the applicants because the remedy of attachment is harsh, extraordinary, and summary in nature. If all the requisites for the granting of the writ are not present, then the court which issues it acts in excess of its jurisdiction. A writ of attachment can only be granted on concrete and specific grounds and not on general averments merely quoting the words of the rules.

• Requirement of Hearing in Attachment Applications — There is a necessity of giving the adverse party an opportunity to ventilate their side in a hearing, in accordance with due process, in order to determine the truthfulness of the allegations supporting an application for a writ of preliminary attachment. The issuance of a writ ex parte without affording the adverse party such opportunity constitutes grave abuse of discretion.

• "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 would not have otherwise given. To constitute a ground for attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued upon." — This passage, quoted from Liberty Insurance Corporation vs. Court of Appeals, defines the controlling standard for fraud as a ground for attachment and was adopted by the Court as the ratio decidendi for denying the writ.

• "A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of mind and need not be proved by direct evidence but may be inferred from the circumstances attendant in each case." — This quotation articulates the test for fraudulent contraction of a debt and was applied by the Court to find that the circumstances did not show a preconceived plan not to pay.

• "A writ of attachment can only be granted on concrete and specific grounds and not on general averments merely quoting the words of the rules." — This statement, quoted from D.P. Lub Oil Marketing Center, Inc. vs. Nicolas, states the core principle that general averments are insufficient to support the issuance of a writ of preliminary attachment.

• "Time and again, we have held that the rules on the issuance of a writ of attachment must be construed strictly against the applicants. This stringency is required because the remedy of attachment is harsh, extraordinary and summary in nature." — This passage articulates the doctrine of strict construction of attachment rules and explains the policy rationale for such stringency.

• Liberty Insurance Corporation vs. Court of Appeals, G.R. No. 104405, 222 SCRA 37 (1993) — Controlling precedent cited for the definition of fraud as a ground for attachment under Section 1(d), Rule 57, requiring that the debtor intended to defraud the creditor at the time of contracting the obligation.

• D.P. Lub Oil Marketing Center, Inc. vs. Nicolas, G.R. No. 76113, 191 SCRA 423 (1990) — Controlling precedent cited for the requirements that a writ of attachment can only be granted on concrete and specific grounds and that a hearing must be conducted to afford the adverse party an opportunity to ventilate their side.

• Republic vs. Gonzales, 13 SCRA 633 — Cited for the principle that fraud is a state of mind and need not be proved by direct evidence but may be inferred from the circumstances attendant in each case.

• Insular Bank of Asia and America vs. Court of Appeals, G.R. No. 61011, 190 SCRA 629 (1990) — Cited for the proposition that fraudulent intent not to honor an admitted obligation cannot be inferred from the debtor's inability to pay or to comply with obligations.

• Ting vs. Villarin, G.R. No. 61754, 176 SCRA 532 (1989) — Cited for the principle that an order of attachment cannot be issued on a general averment, such as one ceremoniously quoting from a pertinent rule.

• Inter-Asia Services Corporation (International) vs. Court of Appeals, G.R. No. 106427, 263 SCRA 408 (1996) — Cited for the principle that if all the requisites for the granting of the writ are not present, then the court which issues it acts in excess of its jurisdiction.

• Section 1(b), Rule 57, Revised Rules of Court — Provides that attachment may issue in an action for money or property embezzled or fraudulently misapplied or converted by a public officer, officer of a corporation, attorney, factor, broker, agent, clerk, or any other person in a fiduciary capacity, or for a willful violation of duty. The Court held that petitioner failed to establish this ground with specific factual allegations.

• Section 1(d), Rule 57, Revised Rules of Court — Provides that 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. The Court held that the fraud must relate to the execution of the agreement and must show a preconceived plan or intention not to pay at the time of contracting the obligation.

• Section 13, P.D. 115 (Trust Receipts Law) — Provides that violation of the trust receipts law constitutes estafa punishable under Article 315 par. 1(b) of the Revised Penal Code. The Court held that while the transaction involved trust receipts, it does not follow that a writ of attachment can and should automatically issue.

• Article 315 par. 1(b), Revised Penal Code — The penal provision under which violation of the trust receipts law is punished as estafa. The Court noted that petitioner's citation of this provision, without more, cannot serve as a good ground for issuing a writ of attachment.

Davide, Jr., Puno, Kapunan, and Pardo, JJ., concurred.