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

Case Summary (G.R. No. 124642)

Applicable Law and Legal Instruments

Primary authorities invoked: Rule 57, Sections 1 and 14, Rules of Court (preliminary attachment and third-party remedies); Article 160 and Article 161 of the New Civil Code (conjugal partnership presumptions and liabilities) and their counterparts in the Family Code as cited by the Court; standards for certiorari under Rule 45; jurisprudential standards on third-party claims and burden of proof (cases cited by the Court include Ong v. Tating; Wong v. IAC; Ayala Investment & Development Corp. v. Court of Appeals).

Factual Background — Loans and Guaranty

PBMCI borrowed from ABC: P9,000,000 on September 26, 1978 (14% interest) evidenced by a promissory note signed by PBMCI through Executive VP Alfredo Ching. A continuing guaranty was executed on September 28, 1978 by Alfredo Ching, Emilio TaAedo and Chung Kiat Hua to guarantee PBMCI obligations up to P38,000,000. PBMCI obtained another loan of P13,000,000 on December 28, 1979 (16% interest), evidenced by a promissory note executed by PBMCI through Ching. PBMCI defaulted on its loans.

Procedural History — Attachment, SEC Rehabilitation and Levy

On August 21, 1981, ABC filed a complaint for sum of money with prayer for writ of preliminary attachment against PBMCI, impleading Ching and the other guarantors as co-defendants. After initial denial, the trial court granted the application on September 14, 1981, issuing a writ of preliminary attachment against properties of Alfredo Ching up to P12,612,972.82 upon posting of a bond. ABC posted the bond and the writ issued. PBMCI and Ching sought suspension of payments and rehabilitation with the SEC on April 1, 1982; SEC placed PBMCI under rehabilitation on July 9, 1982 and suspended related actions. Despite suspension as to PBMCI, the trial court directed individual defendants to file answers; on July 26, 1983 the deputy sheriff levied the attachment on 100,000 Citycorp shares registered in the name of Alfredo Ching.

Motion to Set Aside Levy — Claim of Conjugal Ownership

On November 16, 1993 Encarnacion Ching, assisted by husband Alfredo, filed a Motion to Set Aside the levy, alleging the 100,000 shares were acquired during the marriage out of conjugal funds after Citycorp’s establishment in 1974 and therefore were conjugal partnership property not liable for the husband’s surety obligations. She produced their marriage contract and corporate documents showing Ching as a director and top stockholder. ABC opposed on grounds of lack of personality (she was not a party), failure to intervene, prescriptive/laches grounds, and that the motion should be a separate action.

Trial Court Orders — Quash and Return of Shares

On December 15, 1993, the trial court granted the motion and ordered the writ of preliminary attachment quashed and lifted with respect to the 100,000 Citycorp common shares registered in the name of Alfredo Ching, directing the sheriff to return the shares to the Chings. ABC’s motion for reconsideration was denied on February 17, 1994.

Court of Appeals Ruling — Certiorari Granted

ABC petitioned the Court of Appeals for certiorari, arguing the trial court exceeded jurisdiction by allowing a stranger (Encarnacion) to file the motion and by lifting the writ without basis. The CA granted the petition on November 27, 1995, set aside the RTC orders as null and void, and held that Encarnacion had no right to file the motion in the case and that the spouses’ claim was barred by laches; it also found the shares belonged to Alfredo given corporate registration and applied Wong to require proof of source of funds.

Issues Presented to the Supreme Court

The Supreme Court distilled the issues to: (a) whether the petitioner-wife (Encarnacion) had the right to file a motion to quash the levy although not a party in the collection case; and (b) whether the RTC committed grave abuse of discretion amounting to excess or lack of jurisdiction in issuing the orders quashing the attachment.

Right of a Third Person to Seek Relief from an Erroneous Levy

The Court reaffirmed that a sheriff may attach only property of the defendant; when property of a third person is levied, the aggrieved third person may invoke the court’s superior authority in the same case and request a summary hearing to determine whether the levy was erroneous and to order return if warranted (citing Ong v. Tating and related authorities). The Court therefore held Encarnacion had standing to file the motion to set aside the levy even though she was not a named party, because the motion sought summary relief against an allegedly erroneous levy on third-party property.

Presumption of Conjugal Ownership — Burden of Proof

Applying Article 160 of the New Civil Code, the Court reiterated the presumption that property acquired during marriage is conjugal partnership property, regardless of the name in which title is registered, unless overcome by clear, satisfactory and convincing evidence that it pertains exclusively to one spouse. The Court found the Chings proved the shares were issued and registered to Alfredo during the couple’s marriage and that ABC failed to prove the shares were acquired with husband’s exclusive funds. Consequently, registration in the husband’s name alone was insufficient to overcome the statutory presumption of conjugal ownership.

Liability of the Conjugal Partnership for Husband’s Suretyship

On the question whether the conjugal partnership was liable for obligations contracted by the husband as surety for PBMCI, the Court relied on precedent (Ayala Investment and related cases) to hold that signing as surety is not the exercise of an industry or profession and does not, by itself, constitute contracting obligations for the benefit of the conjugal partnership under Article 161. The conjugal partnership is liable only where debts were contracted for the benefit of the partnership or the family, or where the husband was the principal obligor receiving money or services for his business/profession. Here, ABC did not prove that the continuing guaranty produced a direct benefit to the conjugal partnership; any incidental or speculative advantage to the husband’s position or to PBMCI’s rehabilitation

Case Syllabus (G.R. No. 124642)

Case Citation, Court and Panel

Supreme Court of the Philippines, Second Division, G.R. No. 124642.
Reported at 467 Phil. 830; Decision dated February 23, 2004.
Decision penned by Justice Callejo, Sr. (with Justices Puno (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concurring).
Case arose from CA-G.R. SP No. 33585; Court of Appeals Decision dated November 27, 1995, and Resolution dated April 2, 1996 denying motion for reconsideration, were assailed by petition for review under Rule 45.

Parties and Posture of the Case

Petitioners: Alfredo Ching and Encarnacion Ching (spouses).
Respondents: The Honorable Court of Appeals (as respondent in the petition) and Allied Banking Corporation (ABC) (private respondent).
Nature of the petition: Petition for review on certiorari under Rule 45 seeking reversal of CA decision that granted certiorari to Allied Banking Corporation and set aside trial court orders which had quashed attachment of 100,000 Citycorp Investment Philippines common shares registered in the name of Alfredo Ching.

Material Facts — Loans, Guaranty and Renewals

On September 26, 1978, Philippine Blooming Mills Company, Inc. (PBMCI) obtained a P9,000,000 loan from Allied Banking Corporation; PBMCI, through Executive Vice-President Alfredo Ching, executed a promissory note payable December 22, 1978 at 14% per annum.
On September 28, 1978, Alfredo Ching, Emilio TaAedo and Chung Kiat Hua executed a continuing guaranty in favor of ABC, binding themselves jointly and severally to guarantee PBMCI obligations up to P38,000,000.
The loan(s) were renewed various times; last renewal noted December 4, 1980.
On December 28, 1979, ABC extended an additional loan to PBMCI of P13,000,000 payable in 18 months at 16% per annum; PBMCI, through Alfredo Ching, executed promissory note maturing June 29, 1981; this loan was renewed once for one month.
PBMCI defaulted in payment of its loans.

Commencement of Civil Case and Attachment Application

On August 21, 1981, ABC filed Civil Case No. 142729 (Regional Trial Court, Manila, Branch XVIII) for sum of money with prayer for writ of preliminary attachment to collect P12,612,972.88 (exclusive of interest, penalties, charges); Alfredo Ching, Emilio TaAedo and Chung Kiat Hua impleaded as co-defendants as sureties.
ABC alleged fraud under Rule 57 grounds: false representations as to financial ability to pay and allegations that defendants removed/disposed of properties or were about to do so with intent to defraud creditors; supporting affidavit asserted such acts.

Trial Court — Initial Denial and Reconsideration Granting Attachment

August 26, 1981: After ex parte hearing, trial court issued an Order denying ABC's application for writ of preliminary attachment, deeming grounds as conclusions of fact and law not warranting issuance.
On motion for reconsideration, September 14, 1981, trial court reconsidered and granted writ of preliminary attachment but only as against Alfredo Ching, finding affidavits barely justified issuance of writ as to him; ordered attachment of all properties of Alfredo Ching not exceeding P12,612,972.82 upon posting of bond of P12,700,000 by ABC.
Upon ABC's posting of bond, the trial court issued the writ of preliminary attachment and summonses were served on defendants (except Chung Kiat Hua who could not be found).

SEC Proceedings and Suspension of Actions

April 1, 1982: PBMCI and Alfredo Ching jointly filed petition for suspension of payments and sought PBMCI rehabilitation before the Securities and Exchange Commission (SEC), docketed SEC Case No. 2250.
July 9, 1982: SEC placed PBMCI under rehabilitation receivership and ordered suspension of all actions for claims listed in Schedule A of the petition pending before any court or tribunal; ABC was listed as creditor.
January 31, 1983: PBMCI and Alfredo Ching filed Motion to Dismiss and/or motion to suspend proceedings in Civil Case No. 142729 invoking SEC's jurisdiction over suspension of payments; ABC opposed on February 4, 1983.

Sheriff’s Levy on Stocks and Subsequent Procedural Developments

July 26, 1983: Deputy sheriff levied on attachment 100,000 common shares of Citycorp Investment Philippines registered in the name of Alfredo Ching.
September 16, 1983: Trial court partially granted motion to suspend only as to PBMCI; denied Ching’s motion to dismiss or suspend proceedings as P.D. No. 1758 concerns corporate activities and not individuals; individual defendants directed to file answers.
January 14, 1984: Alfredo Ching filed Motion to Suspend Proceedings again on ground of pendency of SEC Case No. 2250; ABC opposed.
January 20, 1984: TaAedo filed Answer with counterclaim and cross-claim; Ching filed Answer on July 12, 1984.
October 25, 1984: Ching filed Omnibus Motion praying for dismissal or suspension of complaint due to SEC injunctive order; ABC opposed.
TaAedo filed Omnibus Motion arguing ABC had abandoned/waived its right to proceed against continuing guaranty by resorting to preliminary attachment.
December 17, 1986: ABC filed Motion to Reduce attachment bond from P12,700,000 to P6,350,000; Ching opposed.
April 2, 1987: Court set hearing for parties to present evidence on actual value of properties levied on; further proceedings on bond amount.
March 2, 1988: Trial court issued Order granting ABC’s motion and reduced attachment bond to P6,350,000.

Motion to Set Aside Levy by Encarnacion Ching (Third-Party Claimant)

November 16, 1993: Encarnacion T. Ching, assisted by husband Alfredo Ching, filed Motion to Set Aside Levy on Attachment alleging the 100,000 Citycorp shares levied were acquired by her and husband during marriage out of conjugal funds after Citycorp’s establishment in 1974, and that the indebtedness under continuing guaranty did not redound to benefit conjugal partnership; asserted her status as wife conferred third-party claimant right to move for release of properties.
Attached were marriage contract and other documents: marriage contract with Alfredo Ching; articles of incorporation of Citycorp Investment Philippines (May 14, 1979); General Information Sheet showing Alfredo Ching as Board member and among top twenty stockholders.
ABC filed comment opposing the motion, contending inter alia that: (1) Encarnacion Ching was not a party to the case and had no personality to file the motion; (2) she did not file a Motion for Intervention pursuant to Rule 12 Sec. 2; (3) the motion could not be construed as third-party claim under Sec. 14, Rule 57; (4) even if she had personality, the case proceedings were suspended and archived with no motion to revive; (5) the motion was barred by prescription or laches because the shares were in custodia legis (in custody of the law).
During hearing, Encarnacion introduced marriage contract (Exhibit I), Citycorp articles of incorporation (Exhibit J), and the corporate General Information Sheet.

Trial Court Order Quashing Attachment as to Stocks

December 15, 1993: Trial court issued Order granting Motion to Quash Preliminary Attachment and lifted writ of preliminary attachment with respect to the 100,000 Citycorp common shares in the name of Alfredo Ching; ordered sheriff to return shares to petitioners (Alfredo and Encarnacion).
Dispositive language of the Order directed return by Deputy Sheriff who effected levy or current possessor.
ABC filed Motion for Reconsideration of the order; denial of reconsideration on February 17, 1994.

Petition for Certiorari to the Court of Appeals and CA Ruling

ABC filed petition for certiorari with the Court of Appeals (CA-G.R. SP No. 33585) seeking nullification of trial court order, arguing: (1) trial court judge acted without jurisdiction by taking cognizance of and granting motion filed by a stranger to the case; (2) trial court committed grave abuse of discretion by lifting the writ without basis in fact or law and contrary to jurisprudence.