G.R. No. 153827 - Asian Construction and Development Corp. vs. PCI Bank

Case Summary (G.R. No. 153827)

Key Dates and Procedural History

Complaint filed in the RTC on February 24, 1999 (Civil Case No. 99-432). RTC issued writ of preliminary attachment by order dated April 13, 1999. PCIBANK filed a Motion for Summary Judgment on January 24, 2000. RTC rendered Summary Judgment on May 16, 2000. CA affirmed with modification on May 15, 2002 and denied reconsideration on June 3, 2002. The petition for review by the Supreme Court was resolved by the Court’s decision affirming the CA.

Applicable Law and Governing Rules

Constitutional framework: 1987 Constitution (applicable given the decision postdates 1990).
Procedural rules: Rules of Court — petition for review under Rule 45; summary judgment governed by Rule 35 of the Rules of Court (as invoked in the proceedings).
Substantive law references: Articles of the New Civil Code cited by the courts (notably Articles 1262, 1266, 1267 regarding impossibility and enforcement of obligations). Relevant jurisprudence cited by the courts includes decisions interpreting summary judgment standards and the effect of admissions and lack of opposing affidavits.

Statement of Facts — Credit Facilities and Security

PCIBANK alleged that ASIAKONSTRUKT obtained multiple U.S. dollar–denominated credit accommodations totaling US$4,487,000.00 (exclusive of interest, charges, and collection costs), evidenced by promissory notes. Prompt and faithful payment of those promissory notes was allegedly secured by several deeds of assignment executed by ASIAKONSTRUKT in favor of PCIBANK, assigning receivables/contract proceeds from contracts with the National Power Corporation (NPC), ABB Power, Inc., PNOC, and Ormat Philippines, Inc., with specific assigned amounts identified in the complaint.

Terms of the Deeds of Assignment

The deeds of assignment, as pleaded, contained provisions that: (a) the assignment secured payment of principal, interest, bank charges, collection costs and related expenses; (b) the assignment secured extensions/renewals of credit and all other obligations of ASIAKONSTRUKT as reflected in PCIBANK’s records; (c) PCIBANK authorized ASIAKONSTRUKT, at ASIAKONSTRUKT’s expense, to collect receivables; and (d) ASIAKONSTRUKT divested itself of rights, title and interest in the receivables and the proceeds, agreeing not to use said proceeds.

PCIBANK’s Allegations of Nonpayment and Fraud

PCIBANK alleged that the promissory notes remained not fully paid and that, as of December 31, 1998, ASIAKONSTRUKT’s unpaid obligation amounted to US$4,553,446.06 (principal, interest, and penalties). PCIBANK further alleged that ASIAKONSTRUKT had fraudulently collected assigned contract proceeds and used them for its own purposes, thereby depriving PCIBANK of its security. These allegations were supported in the complaint by asserted telephone inquiries and an alleged admission by ASIAKONSTRUKT’s finance vice-president.

Preliminary Attachment Proceedings

PCIBANK sought a writ of preliminary attachment on the ground of fraud in contracting or performance. After receiving ex parte evidence, the RTC ordered the issuance of a writ of preliminary attachment on April 13, 1999, directing attachment of defendant’s non-exempt property up to the principal claim amount (US$4,553,446.06) upon posting of a bond. PCIBANK posted the bond and the writ issued; ASIAKONSTRUKT did not move to quash or dissolve the writ.

ASIAKONSTRUKT’s Answer, Defenses and Counterclaim

In its Answer filed August 27, 1999, ASIAKONSTRUKT admitted, subject to defenses, the material allegations concerning indebtedness and the execution/authenticity of the assignment documents but denied, for lack of sufficient knowledge, the asserted amounts due and the allegations of not having paid despite demands. ASIAKONSTRUKT raised defenses including the severe financial and currency crisis beginning July 1997, which allegedly affected and put it out of business, and that the deeds of assignment were standard bank-prepared forms amounting to contracts of adhesion. ASIAKONSTRUKT also filed a counterclaim seeking attorney’s fees and litigation expenses.

Motion for Summary Judgment and Opposition

PCIBANK filed a verified Motion for Summary Judgment on January 24, 2000, contending that ASIAKONSTRUKT’s defenses were sham, that the economic crisis did not excuse payment and was not a fortuitous event under the Civil Code where bad faith attended, and that the deeds of assignment were valid (not void for adhesion). ASIAKONSTRUKT opposed, asserting genuine issues of material fact as to collection of proceeds, fraudulent misappropriation, insolvency from the economic crisis, and whether the assignments were adhesive, but it failed to attach affidavits or documentary evidence to substantiate those factual assertions.

RTC Summary Judgment — Findings and Decree

On May 16, 2000 the RTC granted PCIBANK’s Motion for Summary Judgment. The court found that ASIAKONSTRUKT’s admissions in its pleadings and the absence of supporting affidavits/documentary proof for its defenses eliminated genuine issues of material fact. The RTC characterized the defenses as worthless, unsubstantial, sham and contrived. The decretal award ordered ASIAKONSTRUKT to pay US$4,553,446.06 (or Philippine peso equivalent), interest at 8.27% per annum from February 24, 1999 until fully paid, attorney’s fees of P1,260,000.00, and costs of suit.

Court of Appeals Ruling — Modification and Rationale

The Court of Appeals affirmed the RTC’s Summary Judgment but modified the award of attorney’s fees, reducing it from P1,260,000.00 to P1,000,000.00. The CA’s reasoning emphasized that ASIAKONSTRUKT failed to present affidavits or documentary evidence to show a bona fide and prima facie substantive defense, thereby failing to raise a genuine issue of material fact as required under the summary judgment rule. The CA noted the significance of ASIAKONSTRUKT’s failure to move to quash the writ of preliminary attachment and its failure to seek rescission of the contracts if it truly believed performance was impossible or unfair.

Legal Standards Applied by

Case Syllabus (G.R. No. 153827)

Procedural Posture

Petition for review under Rule 45 of the Rules of Court filed by Asian Construction and Development Corporation ("ASIAKONSTRUKT") from the Court of Appeals (CA) Decision of March 15, 2002 and CA Resolution of June 3, 2002 in CA-G.R. CV No. 68189.
The CA had affirmed with modification the Summary Judgment rendered by the Regional Trial Court (RTC) of Makati City in favor of respondent Philippine Commercial International Bank (PCIBANK).
The Supreme Court docketed the petition as G.R. No. 153827; the decision was penned by Justice Garcia and promulgated April 25, 2006.
Relief sought: reversal and setting aside of the CA Decision and Resolution.

Case Background and Chronology

February 24, 1999: PCIBANK filed a complaint for a sum of money with prayer for a writ of preliminary attachment in the RTC of Makati City; docketed Civil Case No. 99-432.
April 13, 1999: RTC issued an order directing issuance of a writ of preliminary attachment after ex parte presentation of evidence; PCIBANK posted bond and writ was issued.
August 27, 1999: ASIAKONSTRUKT filed its Answer, making admissions and denials, asserting defenses and a counterclaim.
January 24, 2000: PCIBANK filed a verified Motion for Summary Judgment.
May 16, 2000: RTC rendered Summary Judgment in favor of PCIBANK.
CA Decision (appeal): May 15, 2002 — CA affirmed with modification (reduction of attorney’s fees).
CA Resolution denying reconsideration: June 3, 2002.
Supreme Court Decision: April 25, 2006 — petition denied; CA Decision affirmed in toto.

Parties and Their Roles

Petitioner/Defendant below: Asian Construction and Development Corporation (ASIAKONSTRUKT).
Respondent/Plaintiff below: Philippine Commercial International Bank (PCIBANK).
ASIAKONSTRUKT alleged to have obtained U.S. dollar-denominated credit accommodations from PCIBANK and executed deeds of assignment as security.
PCIBANK alleged nonpayment, fraudulent collection/misapplication of assigned receivables, and sought recovery of unpaid obligations plus damages, attorney’s fees and costs.

First Cause of Action (Primary Claim for Sum of Money)

Allegation that on various occasions ASIAKONSTRUKT obtained credit accommodations totaling US$4,487,000.00 (exclusive of interest, charges, fees, collection costs) evidenced by promissory notes.
Promissory notes remained not fully paid despite demand.
Aggregate unpaid obligation as of December 31, 1998 alleged to be US$4,553,446.06, itemized as:
- Principal: US$4,067,867.23
- Interest: US$291,263.27
- Penalties: US$194,315.56
- Total: US$4,553,446.06
PCIBANK alleged it incurred attorney’s fees/costs by referring matter to counsel.

Second Cause of Action (Fraud and Consequential Relief)

PCIBANK alleged fraudulent acts by ASIAKONSTRUKT which caused damages.
Prayers included:
- Exemplary damages of not less than P50,000.00.
- Attorney’s fees of not less than P1,800,000.00.
- Costs of suit.
PCIBANK later waived exemplary damages and reduced attorney’s fees claimed to P1,260,000.00 on condition of full and final disposition by summary judgment.

Deeds of Assignment: Nature, Coverage and Stipulated Terms

Multiple deeds of assignment executed by ASIAKONSTRUKT in favor of PCIBANK securing the promissory notes, including:
- Deed dated 20 July 1994: assignment of receivables from contract with National Power Corporation (NPC) amounting to P54,500,000.
- Deed dated 28 June 1995: assignment of receivables from NPC in the amount of P26,281,000.00.
- Deed dated 28 August 1995: assignment of receivables from subcontract with ABB Power, Inc., amount P43,000,000.00.
- Deed dated 27 March 1996: assignment of receivables from contracts with PNOC in aggregate P46,000,000.00.
- Deed dated 20 February 1997: assignment of receivables from Ormat Philippines, Inc., in aggregate amount of US$3,350,000.00.
Common stipulations in the deeds:
- Assignment intended to secure payment of principal, interests, bank charges, collection costs and other incidental expenses.
- Assignment secures extensions, renewals and any and all other obligations of ASIAKONSTRUKT recorded by PCIBANK.
- PCIBANK authorizes ASIAKONSTRUKT, at petitioner’s expense, to collect and receive the receivables for PCIBANK.
- ASIAKONSTRUKT agreed to divest itself of rights, title and interest in receivables and proceeds and to have no right to use proceeds of collections.

PCIBANK’s Allegations Supporting Preliminary Attachment

PCIBANK asserted ASIAKONSTRUKT was guilty of fraud in contracting or performance, thereby justifying preliminary attachment.
Investigations (telephone inquiries) with NPC, ABB Power, PNOC and Ormat revealed that ASIAKONSTRUKT had collected contract proceeds or portions thereof and had not turned them over to PCIBANK.
Allegation that proceeds had been used by ASIAKONSTRUKT for its own purposes; a telephone confirmation by ASIAKONSTRUKT’s VP for Finance (Napoleon Garcia) with PCIBANK’s Maricel E. Salaveria on January 12, 1999, was cited as confirming unauthorized use.
Trial court, upon ex parte evidence, found cause and ordered preliminary attachment to secure plaintiff’s principal claim of US$4,553,446.06 (equivalent stated in pesos), conditioned upon posting of a bond in equal amount.

Trial Court Proceedings and Rulings

Trial court received PCIBANK’s ex parte evidence and ordered writ of preliminary attachment on April 13, 1999; PCIBANK posted requisite bond.
ASIAKONSTRUKT did not move to quash or dissolve the writ.
ASIAKONSTRUKT filed Answer admitting material allegations as to indebtedness and authenticity of documents but denied