[ G.R. No.

202004, November 04, 2020 ]

GIL G. CHUA, PETITIONER, VS. CHINA BANKING CORPORATION, RESPONDENTS.

DECISION

HERNANDO, J.:

This Petition for Review on Certiorari1 assails the November 10, 2011 Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 116595, which granted respondent China Banking Corporation's (China Bank)
Petition for Certiorari and Mandamus with Application for Temporary Restraining Order and/or Writ of
Preliminary Injunction3 under Rule 65 of the Rules of Court questioning the lifting of the writ of
attachment by the Regional Trial Court (RTC), as well as the May 16, 2012 Resolution4 denying
petitioner Gil G. Chua's (Chua) Motion for Reconsideration.5

The facts, as culled from the records, are as follows.

On several occasions, Interbrand Logistics & Distribution, Inc.,6 (Interbrand) represented by its duly
authorized officer, Almer L. Caras (Caras), applied with China Bank for the issuance of Domestic Letters
of Credit (L/C) for the purchase of goods from Nestle Philippines. Accordingly, twelve (12) L/Cs with
corresponding trust receipts were issued to Interbrand. By the terms of the trust receipts, Interbrand
agreed to hold the goods in trust for China Bank. Pursuant to the L/Cs, China Bank advanced the amount
of ₱189,831,288.17 in full payment of the invoice value of said goods. The goods were all delivered to
Interbrand's warehouses in Libis, Quezon City, Tarlac City, and Meycauayan, Bulacan. Due to advances
made by China Bank, the parties jointly executed two Surety Agreements whereby in the first
Agreement, Interbrand and its officers, Chua, Carlos Francisco Mijares (Mijares), and Caras served as
sureties; while Edgar San Luis (San Luis) was the individual surety in the second Agreement.7

When the obligation became due, Interbrand failed to pay China Bank despite repeated demands. China
Bank likewise demanded payment from the sureties, including Chua, but the latter failed and refused to
pay.8

On March 1, 2010, China Bank filed a Complaint for Sum of Money and Damages with Application for
Issuance of Writ of Preliminary Attachment9 against Chua and the other sureties before the RTC of
Makati City, Branch 59. China Bank averred that Interbrand, with knowledge and consent of Chua and
other individuals as officers of the company, had committed acts of fraud, deceit and gross bad faith in
contracting their indebtedness from China Bank, with manifest intention not to comply in good faith
with their respective obligations both in the trust receipts and in the surety agreements.

Ruling of the Regional Trial Court:

On March 3, 2010, the trial court issued an Order10 granting the application for issuance of a Writ of
Preliminary Attachment. The dispositive portion reads:

WHEREFORE, as prayed for and upon plaintiff's posting of a bond fixed at PhP189,831,288.17 subject to
the approval of this Court, let a Writ of Preliminary Attachment issue directing the Branch Sheriff of this
Court to attach all the properties, real or personal, of the defendants Interbrand Logistics and
Distribution, Inc. with principal office located at #62 11th Avenue, Cubao, Quezon City; Almer L. Caras
located in #2 Banaba Street corner Narra Avenue, Mapayapa Village, Libis, Quezon City; Gil G. Chua
located in #4 Red Arrow Street,White Plains Subdivision, Quezon City; Carlos Francisco S. Mijares
located in #23 Pikadon Street, Midtown Subdivision, San Roque, Marikina City; Edgar S. San Luis located
in #3 Troy Street, Acropolis Village, Quezon City or anywhere in the Philippines, not exempt from
execution or so much thereof as may be sufficient to satisfy plaintiff's demand for PhP189,831,288.17
plus attorney's fees, unless the defendants make a deposit or give a counterbond in an amount sufficient
to satisfy such demands, besides costs, or in an amount equal to the value of the properties which are
about to be attached. The condition of the plaintiff's bond is such that it shall answer for all the costs
and damages which the defendants Interbrand Logistics and Distribution, Inc. Almer L Caras, Gil G. Chua,
Carlos Francisco S. Mijares and Edgar S. San Luis may sustain by reason of the attachment, if the court
shall finally adjudge that the plaintiff is not entitled thereto. In the event defendants make deposit or
give a counterbond as stated above, the same shall be conditioned to secure payment to the plaintiff of
any judgment which it may recover in this action.11 (Emphasis ours)

Chua and the other sureties filed a Motion to Lift Writ of Attachment,12 alleging that they are not
debtors, thus should not be guilty of fraud in incurring the obligation. Chua filed a Supplement to the
Motion to Lift the Writ of Attachment arguing that he is neither an officer, director nor a stockholder of
Interbrand. Consequently, the trial court lifted the Writ of attachment against petitioner in an
Order13 dated May 21, 2010. China Bank filed a Motion for Reconsideration.14 It presented the Minutes
of the Special Meeting of the Board of Directors of Interbrand15 which shows that petitioner was one of
the directors of Interbrand who approved the authority of its President, San Luis, and CFO-Director
Caras to obtain loans from and sign trust receipt and loan documents with China Bank. China Bank
likewise presented a copy of the Amended Articles of Incorporation16 adopted on July 9, 2005 which
indicated petitioner as one of the incorporators. Moreover, China Bank argued that Chua admitted in his
Answer that he executed the Surety Agreement. The trial court did not give credence to the documents
presented by China Bank because none of these documents indicated that during the period material to
the case, from September to December 2009, Chua was still a stockholder and director of Interbrand.

Ruling of the Court of Appeals:

China Bank filed a Petition for Certiorari and Mandamus with Application for Temporary Restraining
Order (TRO) and/or Writ of Preliminary Injunction17 with the CA. On November 10, 2011, the CA
rendered a Decision18 granting the petition and reinstating the March 3, 2010 Order which directed the
branch sheriff to attach the properties of Chua. The appellate court noted that Chua voluntarily signed
the Surety Agreement and his liability therein is not limited during his incumbency as an officer and
stockholder of Interbrand. The appellate court opted not to tackle the issue on fraud because it would
be tantamount to ruling on the merits. Chua moved for reconsideration but it was denied by the CA in
its May 16, 2012 Resolution.19

Chua filed the instant Petition for Review on Certiorari20 challenging the ruling of the CA. He claims that
the appellate court violated his right to due process when the latter disregarded his evidence to support
the lifting of the writ of attachment and finding that he voluntarily signed the surety agreement. Chua
contends that when the appellate court held that the trial court committed grave abuse of discretion
when it lifted the writ of preliminary attachment, it was in effect making his liability as surety conditional
on his being a director, officer or a stockholder, without taking into consideration whether fraud
attended the incurrence of the obligation. Finally, Chua asserts that the remedy from the order lifting
the writ of attachment is not through a writ of certiorari but may be corrected only by appeal.21

In China Bank's Comment,22 it maintains that under the surety agreement, Chua became obligated to
perform the obligation and duty of Interbrand in the trust receipts even without possessing a direct or
personal interest in the obligations constituted by the latter and despite the fact that Chua is not a
signatory in the trust receipts. China Bank adds that the obligation of Chua being direct, primary and
absolute, it was as if he personally bound himself to fulfill all and any other obligations of Interbrand in
the trust receipt agreements in favor of China Bank. China Bank asserts 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 he did not have the intention to pay China Bank the
proceeds. China Bank adds that mere failure to comply with the trust receipt obligation is a crime.23

Issue

The issue for our resolution concerns only the propriety of the attachment on the properties of Chua.

Our Ruling

A writ of preliminary attachment is a provisional remedy issued upon the order of the court where an
action is pending. Through the writ, the property or properties of the defendant may be levied upon and
held thereafter by the sheriff as security for the satisfaction of whatever judgment might be secured by
the attaching creditor against the defendant. The provisional remedy of attachment is available in order
that the defendant may not dispose of the property attached, and thus prevent the satisfaction of any
judgment that may be secured by the plaintiff from the former.24

Under Sections 1225 and 13,26 Rule 57 of the Rules of Court, there are two ways to secure the discharge
of an attachment, as mentioned by the CA. First, the party whose property has been attached or a
person appearing on his/her behalf may post a security. Second, said party may show that the order of
attachment was improperly or irregularly issued.27 In this case, Chua successfully had the attachment
against him initially discharged on the second ground.

China Bank's basis in applying for the writ of preliminary attachment is Section 1(d), Rule 57 of the Rules
of Court, i.e., "[i]n an action against a party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in the performance thereof." Section 328 of
the same rule requires that an affidavit of merit be issued alleging the following facts: (1) that a
sufficient cause of action exists; (2) that the case is one of those mentioned in Section 1 hereof; (3) that
there is no other sufficient security for the claim sought to be enforced by the action; and (4) that the
amount due to the applicant, or the value of the property the possession of which he/she is entitled to
recover, is as much as the sum for which the order is granted above all legal counterclaims.29

Contrary, however, to the declaration of the CA, there must be a showing of fraud, at least on the
allegations in the application tor writ of preliminary attachment.

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. 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. A debt is
fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention
not to pay. x x x

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.30 (Citations omitted)

In the Joint Affidavit executed by the officers of China Bank, the following pertinent allegations were
made to substantiate the application for a writ of preliminary attachment:

5. In the discharge of our duties, we have encountered and/or processed the accounts of defendants
INTERBRAND LOGISTICS & DISTRIBUTION, INC., Almer L. Caras, Gil G. Chua, Carlos Francisco S. Mijares,
and Edgar San Luis, wherein:

[5].a. On several occasions, defendant INTERBRAND, thru its duly authorized officers, defendant Almer L.
Caras, applied in writing with plaintiff for the issuance of domestic Letters of Credit (L/C) for the
purchase of goods described therein from Nestle Philippines, Inc. (NESTLE, for short). Plaintiff approved
these applications and accordingly issued domestic Letters of Credit; x x x

[5].b. In consideration of and as agreed by plaintiff and defendants in said Letters of Credit (L/Cs),
plaintiff financed in the ordinary course of its banking business the purchase by defendant INTERBRAND
of the goods described in said L/Cs from the supplier, NESTLE, by advancing for INTERBRAND's account
the total principal amount of ₱189,831,288.17, Philippine currency, in full payment of the total invoice
value of said goods. Such advance payments by plaintiff are duly evidenced by bank drafts drawn for and
accepted by defendant INTERBRAND, through defendant Almer L. Caras, upon presentment with
stamps, expenses and charges duly paid.

[5].c. Contemporaneously and/or in connection with the preceding transactions, defendant

(i) Sell or procure the sale of goods, or to manufacture/process the same with the ultimate purpose of
sale, and to remit to plaintiff the proceeds thereof, at the latest on or before the maturity dates of said
trust receipts;

(ii) In case of non-sale, defendants must return said goods invariably on or before the maturity dates of
the trust receipts, and

(iii) Defendants must account to plaintiff for the goods received in trust for the latter and/or the
proceeds of the sale thereof, if any, on or before the maturity dates of the trust receipts;

[5].d. Furthermore, defendant INTERBRAND as PRINCIPAL, and defendants Gil G. Chua, Carlos Francisco
S. Mijares, Almer L. Caras and Edgar S. San Luis as Sureties, executed Surety Agreements dated April 24,
2008 and May 22, 2008 x x x wherein they jointly and severally bound and obligated themselves to pay
in full plaintiff their trust receipt obligations on or before the respective maturity dates of the trust
receipts;
[6]. In January 2010, defendants failed to pay their trust receipt obligations. Despite their request,
plaintiff did not grant defendants a 60-day extension of the maturity dates of their trust receipts. Also,
despite demands, defendants also failed to comply with their obligations in the Surety Agreements x x x
whereby they obligated and undertook themselves to pay all the trust receipt obligations of defendant
INTERBRAND;

[7]. Because of this, plaintiff thru its account officers conducted an investigation/inquiry on the
underlying causes of the default of defendants on their respective obligations as stated above. As shown
by the Letters of Credit, the Nestle products purchased by defendant INTERBRAND are among others,
Bearbrand Milk, Milo and Nescafe items. These are known to be basic and prime commodities. As such,
they are highly saleable because they are known to be consumed daily by customer.

[8]. When letters of credit were opened in behalf of defendants and for the benefit of Nestle Phils[.], Inc.
as the supplier of the goods, these goods were to be delivered to the warehouses of INTERBRAND in
McArthur Highway, Block 9, Tarlac City, Cagayan Valley Road 346, Sta. Rita, Guiguinto, Bulacan and Libis,
Quezon City as stated in the Sales Invoices. Being saleable products, the proceeds of the sale of these
products could be and were collected by the sales agents of INTERBRAND from their customers in a
matter of 2 weeks. Since Interbrand could collect the proceeds of the sale in approximately 2 weeks, it
should have, and was in fact obliged under the trust receipts to immediately remit such payments or
proceeds to plaintiff such being its trust receipt obligation as stated in par. 5.c above. This is so because
plaintiff financed and/or advanced the payment of the invoice value of said products for INTERBRAND;

remittance to plaintiff.ℒαwρhi ৷ Instead, defendants INTERBRAND and Almer L. Caras, with the
[9]. Despite collection of said sale proceeds, defendants deliberately failed to make the aforesaid

knowledge and consent of the other defendants, misappropriated the sale proceeds for their benefit
and satisfaction to the extreme damage of plaintiff. Such constituted the crime of Estafa under Article
315, par. 1(b) of the Revised Penal Code;

[10]. Also, instead of delivering the goods/Nestle products to the warehouses of defendants
INTERBRAND in Libis, Quezon City, Tarlac City and Meycauayan, Bulacan, we discovered that defendants
caused/allowed/facilitated the delivery of the goods covered by the Letters of Credit and Sales Invoices
mentioned above to a warehouse located at Oliveros Drive, Quezon City;

[11]. Upon ocular inspection of said warehouse in Oliveros Drive, Quezon City, the security guard
stationed therein and whom we talked to revealed to us that said warehouse is not owned by defendant
INTERBRAND as shown by the fact that the goods existing therein were Belo Cosmetic items and Datu
Puti Products, not Nestle products;

[12]. Because of this deliberate diversion in the delivery of the Nestle products covered by the Letters of
Credit to a location different from the warehouses of defendant INTERBRAND, plaintiff, in the process
was prevented from monitoring the circumstances by which INTERBRAND was supposed to utilize the
same goods to make sure that defendants would be able to comply with their obligations in the trust
receipts;

[13]. The foregoing circumstances obviously indicate that defendants did not actually have the honest
intention to faithfully comply with their trust receipt obligations. The real intention of defendants was
not to tum over the proceeds of the sale of the Nestle products to plaintiff, but to misappropriate the
same to the unlawful satisfaction and benefit of the defendants[;]

[14]. Defendants are obviously guilty of fraud in contracting their obligations/indebtedness with plaintiff,
hence, the latter is lawfully entitled to the issuance of the Writ of Preliminary Attachment under Rule 57,
Section 01 of the Revised Rules of Court.31

A perusal of the allegations in the affidavit reveals fraud in the violation of trust receipt agreements.
According to China Bank, it advanced a total of ₱189 Million as payment for the goods of Nestle in favor
of Interbrand. These goods are considered highly saleable thus they naturally expected immediate and
regular remittance of the sales proceeds. However, instead of remitting the sales proceeds to China
Bank, Interbrand misappropriated the same by deliberately diverting the delivery of the goods covered
by the L/Cs to a location different from that indicated in the sales invoice. This act of misappropriation
demonstrates a clear intent of fraud.

Chua, having signed the surety agreement, bound himself to jointly and solidarily fulfill the obligation of
Interbrand to China Bank. The question of whether he was an officer and stockholder at the time when
the Complaint for Sum of Money with Application for Writ of Attachment was filed was raised by
petitioner and considered by the trial court in lifting the writ of attachment against him. We hold that
such finding would necessarily delve into the merits of the case as China Bank seeks to hold petitioner
and other sureties liable under the Suretyship Agreements.

Suffice it to say that on the face of the allegations, the issuance of a writ of preliminary attachment is
regular and proper. Thus, we agree with the CA in reinstating the March 3, 2010 Order directing the
issuance of a writ of attachment against the properties of Chua.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The November 10, 2011 Decision and the
May 16, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 116595 are AFFIRMED.

SO ORDERED.