G.R. No. 124642 - Ching vs. Court of Appeals

Case Summary (G.R. No. 124642)

Relevant Dates and Procedural History

September 26, 1978: PBMCI obtained a P9 million loan from ABC, evidenced by a promissory note signed by Alfredo Ching.
Subsequent loans and renewals occurred, including a P13 million loan on December 28, 1979.
PBMCI defaulted; ABC filed complaint with preliminary attachment on August 21, 1981.
The trial court initially denied, then granted ABC’s writ of preliminary attachment against Alfredo Ching’s properties on September 14, 1981.
Shares were levied on July 26, 1983.
PBMCI placed under rehabilitation by SEC on July 9, 1982, suspending claims against it.
From 1993 to 1994, petitioners moved to quash the attachment on the stocks; the trial court granted such motion.
ABC appealed to the Court of Appeals (CA), which reversed the trial court’s order in 1995.
The Supreme Court decision under the 1987 Philippine Constitution was rendered on February 23, 2004.

Applicable Laws and Legal Principles

The case principally involves rules on writs of preliminary attachment under Rule 57 of the Rules of Court, provisions on conjugal partnership property under Article 160 of the New Civil Code (now codified under the Family Code), and continuing guaranty obligations relating to whether the conjugal partnership is liable for debts contracted by one spouse. Also relevant are procedural rules on third-party claims and motions to quash levies during pending proceedings.

Summary of Facts and Issues

PBMCI incurred substantial debt from ABC, secured by suretyship from Alfredo Ching. When PBMCI defaulted, ABC sought to recover through a writ of preliminary attachment against the sureties, including Ching. The trial court initially required a bond and granted the attachment of Ching’s assets, specifically the 100,000 shares of Citycorp stock, despite the share registration being in Ching’s name alone. Subsequently, the spouses filed a motion to quash the levy arguing that the shares are conjugal property acquired during marriage from conjugal funds and that the continuing guaranty was not for conjugal partnership benefit.

ABC contested the non-party status of Encarnacion Ching and sought to affirm the attachment. The trial court granted the motion lifting the attachment, but the CA reversed, holding that Encarnacion lacked standing, that the shares belonged solely to Alfredo Ching, and that ABC was deprived of its right to post bond. The CA also relied on the presumption under Article 160 but required clear proof of exclusive ownership over conjugal presumption.

Issue on Standing of Non-Party Spouse to File Motion to Quash Attachment

The Supreme Court recognized Encarnacion Ching, although not a party in the underlying litigation, had the right to file a motion to quash the levy on the shares as a third-party claimant in the same case. Under established jurisprudence (Ong v. Tating), when a sheriff erroneously levies property belonging to a third party, that party may seek a summary hearing within the case to establish wrongful levy and recover possession. This motion does not determine final title but suffices to protect third parties against illegal seizures. Therefore, Encarnacion's filing was legally proper and meritorious.

Whether the Trial Court Committed Grave Abuse of Discretion in Lifting the Attachment

The Supreme Court found no grave abuse of discretion by the trial court. Grave abuse requires capricious or arbitrary conduct beyond mere errors of judgment. The trial court properly applied the presumption under Article 160 of the Civil Code that all property acquired during marriage is conjugal unless proven otherwise. The shares were issued during the marriage and registered under Alfredo Ching's name; however, the private respondent ABC failed to prove exclusive ownership or that they were not conjugal property. The mere name in the corporate books is insufficient to rebut the presumption.

The Court cited its precedents, including Tan v. Court of Appeals and Wong v. Intermediate Appellate Court, noting that the burden to prove exclusive ownership or separate acquisition by one spouse lies on the party claiming such. ABC's failure to discharge this burden meant the trial court rightly lifted the attachment on shares presumed conjugal.

Liability of the Conjugal Partnership for Continuing Guaranty and Suretyship

The Court emphasized that the conjugal partnership is liable only for debts contracted by either spouse for the benefit of the partnership (Article 161(1), New Civil Code). It distinguished between obligations contracted by the husband for his profession or business and a gratuitous suretyship executed as accommodation for a third party's loan. Execution of a suretyship, while binding, does not equate to engaging in a business or profession that would implicate conjugal partnership assets.

The petitioner-husband’s act as surety for the company’s loan, without direct benefit to the conjugal partnership, cannot bind conjugal assets. Accordingly, the shares registered as conjugal property are ex

Case Syllabus (G.R. No. 124642)

Procedural History and Nature of Petition

Petitioners Alfredo and Encarnacion Ching filed a petition for review under Rule 45 challenging the November 27, 1995 Decision of the Court of Appeals (CA) granting Allied Banking Corporation’s (ABC) petition for certiorari and nullifying the trial court’s December 15, 1993 and February 17, 1994 orders.
The trial court had issued orders lifting the writ of preliminary attachment on 100,000 shares of Citycorp Investment Philippines stocks registered under Alfredo Ching’s name.
The CA found the trial court acted without jurisdiction and that the petitioner-wife, Encarnacion Ching, being a non-party, had no right to file a motion to quash the attachment.
The petitioners disputed the CA ruling, asserting that the shares were conjugal property and that the suretyship did not benefit the conjugal partnership.

Factual Background

On September 26, 1978, Philippine Blooming Mills Company, Inc. (PBMCI) obtained a P9,000,000 loan at 14% interest from ABC, evidenced by a promissory note executed by its EVP Alfredo Ching.
Alfredo Ching, Emilio TaAedo, and Chung Kiat Hua signed a continuing guaranty to jointly and severally guarantee PBMCI’s obligations to ABC up to P38,000,000.
Another loan of P13,000,000 with 16% interest was made on December 28, 1979, also evidenced by a promissory note executed by Alfredo Ching.
PBMCI defaulted on its loans, leading ABC to file suit on August 21, 1981, with a prayer for preliminary attachment of Alfredo Ching’s properties, improperly claiming fraud and disposal of assets to defraud creditors.
Initial denial of attachment by the trial court was reversed on reconsideration, and attachment on Alfredo Ching’s properties was allowed upon ABC posting of bond.
On July 26, 1983, 100,000 Citycorp shares registered to Alfredo Ching were levied upon by the deputy sheriff.
PBMCI and Ching jointly filed for suspension of payments and rehabilitation with the SEC in 1982, which issued an injunctive order suspending actions against PBMCI in court.
The trial court suspended proceedings only against PBMCI, allowing individual defendants including Ching to answer the complaint.
The Chings moved repeatedly to suspend or dismiss proceedings citing SEC injunction but were denied; after coordination, issues of attachment bond reduction and motion to quash attachment were raised.

Petition to Set Aside Levy on Attachment

On November 16, 1993, Encarnacion Ching filed a motion to set aside the levy on the 100,000 shares alleging they were conjugal property acquired during marriage with conjugal funds.
She asserted the continuing guaranty obligation executed by Alfredo Ching did not benefit the conjugal partnership and claimed right as a third-party movant to seek release of attached property.
The ABC opposed, challenging her lack of party status, failure to intervene or file third-party claim, procedural propriety due to suspension of case, and asserted prescription and laches because shares were in custodia legis.
Trial court granted the motion on December 15, 1993, lifting the attachment and ordering return of shares.
ABC’s motion for reconsideration was denied on February 17, 1994.

Court of Appeals Ruling

ABC filed a certiorari petition with the