G.R. No. 202004 - Chua vs. China Banking Corp.

Case Summary (G.R. No. 202004)

Key Dates and Procedural History

China Bank filed a Complaint for Sum of Money with Application for Issuance of Writ of Preliminary Attachment against Interbrand and its sureties. The RTC of Makati issued a writ of preliminary attachment on March 3, 2010. The trial court later lifted attachment as to Chua on May 21, 2010; China Bank sought reconsideration and filed a petition for certiorari and mandamus with the Court of Appeals, which reinstated the March 3, 2010 order on November 10, 2011 and denied reconsideration on May 16, 2012. Petitioner filed a petition for review on certiorari to the Supreme Court, which denied the petition and affirmed the Court of Appeals.

Applicable Law and Constitutional Basis

The Court applied the 1987 Philippine Constitution as the governing constitutional framework. The principal procedural law invoked is Rule 57 of the Rules of Court (Sections 1(d), 3, 12, and 13) governing writs of preliminary attachment, and Rule 65 (certiorari and mandamus) as used in the Court of Appeals petition. The decision discusses the requirements for issuance and discharge of writs of preliminary attachment and the showing required to allege fraud under Section 1(d) of Rule 57.

Factual Summary

Interbrand, through its duly authorized officer Almer L. Caras, applied for and obtained twelve domestic Letters of Credit (L/Cs) from China Bank to purchase goods from Nestle Philippines. China Bank advanced P189,831,288.17 in payment. Trust receipts were executed under which Interbrand agreed to hold the goods in trust and remit sale proceeds to China Bank. The goods were delivered to designated Interbrand warehouses. Interbrand defaulted on trust receipt obligations; China Bank alleged misappropriation of proceeds and diversion of goods to another warehouse. Interbrand and certain officers (including Chua) executed Surety Agreements obligating themselves jointly and severally to pay the trust receipt obligations.

Trial Court’s Ruling and Reasoning

The RTC granted China Bank’s application for a writ of preliminary attachment on March 3, 2010, conditioned upon China Bank posting a bond equal to the amount advanced. Chua and other sureties moved for discharge of the attachment; Chua argued he was not an officer, director, or stockholder of Interbrand and therefore not liable. The trial court lifted the writ of attachment as to Chua on May 21, 2010, reasoning that the documents China Bank later presented did not show that Chua was a stockholder or director during the material period (September–December 2009).

Court of Appeals’ Ruling and Reasoning

The Court of Appeals granted China Bank’s petition for certiorari and mandamus and reinstated the March 3, 2010 attachment order. The CA emphasized that Chua voluntarily signed the Surety Agreement, and that liability thereunder was not limited to his incumbency as officer or stockholder. The CA avoided deciding fraud on the merits, treating the issue of Chua’s surety liability under the agreement and the sufficiency of allegations supporting attachment as dispositive.

Issue Presented to the Supreme Court

Whether the writ of preliminary attachment against Chua’s properties was proper, i.e., whether the factual and legal requirements for attachment under Rule 57 — particularly the showing of fraud under Section 1(d) and the affidavit requirements of Section 3 — were satisfied such that the Court of Appeals correctly reinstated the writ of attachment after the trial court lifted it as to Chua.

Supreme Court’s Legal Analysis on Attachment and Fraud

The Court reiterated the nature and purpose of a writ of preliminary attachment as a provisional remedy to secure assets to satisfy any eventual judgment. It emphasized that Section 1(d) of Rule 57 authorizes attachment where the defendant was “guilty of a fraud in contracting the debt or incurring the obligation,” and that Section 3 requires an affidavit demonstrating, among other things, that the case falls within the enumerated grounds and that no other sufficient security exists. The Court stressed that there must be a showing of fraud — specifically, fraudulent intent at the time of contracting the obligation — because mere nonpayment does not, by itself, permit an inference of fraud. The affidavit must sufficiently allege factual circumstances indicating fraudulent intent (e.g., a preconceived plan not to pay, diversion or misappropriation of proceeds).

Application of Law to the Record: Affidavit and Allegations

The Supreme Court reviewed China Bank’s joint affidavit, which alleged: (1) advances totaling P189,831,288.17 to pay Nestle suppliers under L/Cs; (2) execution of trust receipt agreements requiring remittance of sale proceeds or return of goods; (3) execution of Surety Agreements by Interbrand and named sureties (including Chua); (4) default in January 2010 and failure to remit proceeds despite collection; (5) diversion of deliveries to a different warehouse and ocular inspection evidence suggesting misdelivery and misappropriation; and (6) that these facts indicate deliberate misappropriation and the crime of estafa. The Court found that, on the face of these alleg

Case Syllabus (G.R. No. 202004)

Nature of the Case

Petition for Review on Certiorari to the Supreme Court challenging the Court of Appeals' November 10, 2011 Decision in CA‑G.R. SP No. 116595 and its May 16, 2012 Resolution denying reconsideration.
Subject matter: propriety of issuance and lifting/reinstatement of a Writ of Preliminary Attachment issued under Rule 57 (Rule 57 is the attachment rule referenced in the source), particularly under Section 1(d) (fraud in contracting the debt), and procedural propriety of relief sought via Rule 65 certiorari/mandamus at the Court of Appeals.
Parties: Gil G. Chua (petitioner) vs. China Banking Corporation (respondent / attaching creditor).

Key Procedural Chronology

March 1, 2010: China Bank filed Complaint for Sum of Money and Damages with Application for Issuance of Writ of Preliminary Attachment in the RTC of Makati City, Branch 59, against Interbrand and sureties including Gil G. Chua.
March 3, 2010: RTC issued Order granting application and directed issuance of Writ of Preliminary Attachment upon plaintiff’s posting of bond fixed at PhP189,831,288.17.
May 21, 2010: Trial court issued an Order lifting the writ of attachment as to petitioner Chua after Chua moved to lift the writ on grounds that he was not a debtor and was not an officer, director, or stockholder.
China Bank filed a Motion for Reconsideration in the RTC, submitted minutes of Interbrand board meeting and Amended Articles of Incorporation, and emphasized Chua’s admitted execution of the Surety Agreement; the trial court did not credit those documents as showing Chua’s status during the material period.
China Bank filed Petition for Certiorari and Mandamus with Application for TRO/Preliminary Injunction in the Court of Appeals.
November 10, 2011: Court of Appeals granted China Bank’s petition, reinstated March 3, 2010 Order, and directed attachment of Chua’s properties.
May 16, 2012: Court of Appeals denied Chua’s Motion for Reconsideration.
Petition for Review on Certiorari filed in the Supreme Court challenging CA rulings; Supreme Court rendered decision on November 4, 2020 (G.R. No. 202004).

Relevant Factual Background

Interbrand Logistics & Distribution, Inc. (formerly Publicis Interbrand, Inc.) applied on several occasions, through its officer Almer L. Caras, for Domestic Letters of Credit (L/Cs) from China Bank to purchase goods from Nestle Philippines.
Twelve (12) Letters of Credit with corresponding Trust Receipts were issued to Interbrand; China Bank advanced a total of P189,831,288.17 in full payment of the invoice value of the goods.
Goods were to be delivered to Interbrand warehouses in Libis, Quezon City; McArthur Highway, Tarlac City; and Meycauayan, Bulacan (variously described as Libis, Quezon City; Tarlac City; Meycauayan, Bulacan in the record).
Trust receipt terms: Interbrand agreed to hold goods in trust for China Bank and to sell or otherwise remit proceeds to China Bank by maturity; in case of non-sale, to return goods by maturity; to account for goods and proceeds by maturity.
Because of advances, parties executed two Surety Agreements: first agreement listed Interbrand and officers including Chua, Mijares, and Caras as sureties; second agreement listed Edgar San Luis as individual surety.
Interbrand failed to pay when obligations matured; China Bank made repeated demands on Interbrand and sureties including Chua; Chua failed and refused to pay.

RTC Application, Order and Basis for Attachment

China Bank filed Complaint for Sum of Money and Damages with Application for Issuance of Writ of Preliminary Attachment under Rule 57, Section 1(d) (fraud in contracting debt).
RTC Order dated March 3, 2010: granted application and directed Branch Sheriff to attach all properties (real or personal) of defendants, including Chua, subject to posting of plaintiff’s bond fixed at PhP189,831,288.17; bond condition to answer for costs and damages defendants may sustain if attachment later found improper.
The writ of attachment sought to secure satisfaction of any judgment that plaintiff may recover and to prevent disposition of attached property that would frustrate satisfaction of judgment.

Motions to Discharge Attachment and Trial Court Ruling

Defendants, including Chua, filed Motion to Lift Writ of Attachment arguing they were not debtors and therefore not guilty of fraud in contracting the obligation.
Chua supplemented the motion asserting he was neither officer, director nor stockholder of Interbrand.
Trial court granted relief and lifted the Writ of Attachment as to Chua in Order dated May 21, 2010.
China Bank filed Motion for Reconsideration with additional documentary evidence: Minutes of Special Meeting of Interbrand’s Board of Directors showing Chua as a director approving authority for San Luis and Caras to obtain loans and sign trust receipt and loan documents; Amended Articles of Incorporation dated July 9, 2005 listing Chua as incorporator.
Trial court declined to credit China Bank’s documents because they did not show Chua’s status during the material period (September to December 2009).

Court of Appeals Proceedings and Ruling

China Bank filed Petition for Certiorari and Mandamus (with TRO/Preliminary Injunction) in the Court of Appeals under Rule 65, challenging trial court’s lifting of attachment.
November 10, 2011 CA Decision: granted petition and reinstated March 3, 2010 RTC Order directing attachment of Chua’s properties.
CA