Wednesday, July 30, 2014

Chuidian vs Sandiganbayan (Remedial Law)

Vicente CHUIDIAN V. SANDIGANBAYAN and the Republic
G.R. No. 1339941 | JANUARY 19, 2001
(modes of quashal of the writ of attachment)
FACTS:
In September 1980, Chuidian allegedly a dummy of Ferdinand and Imelda Marcos, was able to obtain, allegedly under false pretenses, a loan guarantee from Philguarantee Corp., the BOI and the Central Bank, in favor of the Asian Reliability Co. Inc. (ARCI). ARCI, 98% of which was allegedly owned by Chuidian, was granted a loan guarantee of US $25M for the establishment of 5 inter-related projects in the country.
However, Chuidian used the same in investing in corporations operating in the US. ARCI then defaulted in the payments of the loan, compelling Philguarantee to undertake payments for the same. Philguarantee sued Chuidian before a Californian court, charging him of violating the terms of the loan, defaulting in payments and misusing the proceeds for his personal benefit. Chuidian claimed that he himself was a victim of the systematic plunder perpetrated by the Marcoses.
On November 1985, Philguarantee entered into a compromise agreement with Chuidian whereby Chuidian shall assign and surrender title to all his companies in favor of the Phil. Gov’t.  In return, Philguarantee shall absolve Chuidian from all civil and criminal liability concerning the payments Philguarantee had made on Chuidian’s defaulted loans. It was further stipulated that the Phil. government shall pay Chuidian the amount of US $5.3M. Chuidian received the 1st two installments of the payment. The remaining balance of US $4.6M was to be paid through an irrevocable Letter of Credit (L/C) from which Chuidian would draw US $100k monthly.

With the advent of the Aquino administration, the newly-established PCGG exerted earnest efforts to search and recover properties and assets suspected as having been illegally acquired by the Marcoses, their relatives and cronies. Chuidian was among those whose assets were sequestered by the PCGG.  The PNB was directed to place the letters of credit under its custody, in behalf of the PCGG.

In the meantime, Philguarantee filed a motion before the Superior Court of California, seeking to vacate the stipulated judgment containing the settlement between Philguarantee and Chuidian on the grounds that: (a) Philguarantee was compelled by the Marcos administration to agree to the terms of the settlement; (b) Chuidian blackmailed Marcos into pursuing the settlement agreement by threatening to expose the fact that the Marcoses made investments in Chuidian’s American enterprises; and (c) the Aquino administration had ordered Philguarantee not to make further payments on the L/C to Chuidian.  However, the Californian court concluded that Philguarantee was not able to sufficiently show that the settlement should be set aside. On appeal, the CA of the State of California affirmed the judgment of the Superior Court denying Philguarantee’s motion.
Chuidian filed before the California Central District Court, an action against PNB seeking to compel the latter to pay the proceeds of the L/C. Philguarantee intervened in said action, raising the same issues and arguments it had earlier raised in the action before the Santa Clara Superior Court, alleging that PNB was excused from making payments on the L/C since the settlement was void due to illegality, duress and fraud.
The Federal Court rendered judgment ruling:  (1) in favor of PNB excusing the said bank from making payment on the L/C; and (2) in Chuidian’s favor by denying intervenor Philguarantee’s action to set aside the settlement agreement.

Meanwhile a Deed of Transfer was executed between then Sec. of Finance and then PNB President Edgardo Espiritu, to facilitate the rehabilitation of PNB. Thus, the gov’t assumed all liabilities of PNB including the L/C listed in favor of Chuidian in the amount of US $4.4M

On July 1987, the gov’t filed before the Sandiganbayan a civil case against the Marcos spouses, several gov’t officials, and a number of individuals known to be cronies of the Marcoses, including Chuidian, seeking the reconveyance, accounting and restitution of all forms of wealth allegedly procured illegally by the defendants. 
While the case was pending, the Republic filed a motion for issuance of a writ of attachment over the L/C in the name of Chuidian, citing as grounds therefor the following:
(1) Chuidian embezzled or fraudulently misapplied the funds of ARCI acting in a fiduciary capacity, justifying issuance of the writ under Section 1(b), Rule 57 of the Rules of Court;
(2) The writ is justified under Section 1(d) of the same rule as Chuidian is guilty of fraud in contracting the debt or incurring the obligation upon which the action was brought, or that he concealed or disposed of the property that is the subject of the action;
(3) Chuidian has removed or disposed of his property with the intent of defrauding the plaintiff as justified under Section 1(c) of Rule 57; and
(4) Chuidian is residing out of the country or one on whom summons may be served by publication, which justifies the writ of attachment prayed for under Section 1(e) of the same rule.
The Republic also averred that should the action brought by Chuidian before the U.S. District Court of California to compel payment of the L/C prosper, inspite of the sequestration of the said L/C, Chuidian can ask the said foreign court to compel the PNB Los Angeles branch to pay the proceeds of the L/C.  Eventually, Philguarantee will be made to shoulder the expense resulting in further damage to the government.  Thus, there was an urgent need for the writ of attachment to place the L/C under the custody of the Sandiganbayan so the same may be preserved as security for the satisfaction of judgment in the case before said court.

Chuidian opposed the motion for issuance of the writ of attachment, contending that:
(1) The plaintiff’s affidavit appended to the motion was in form and substance fatally defective;
(2) Section 1(b) of Rule 57 does not apply since there was no fiduciary relationship between the plaintiff and Chuidian;
(3) While Chuidian does not admit fraud on his part, if ever there was breach of contract, such fraud must be present at the time the contract is entered into;
(4) Chuidian has not removed or disposed of his property in the absence of any intent to defraud plaintiff;
(5) Chuidian’s absence from the country does not necessarily make him a non-resident; and
(6) Service of summons by publication cannot be used to justify the issuance of the writ since Chuidian had already submitted to the jurisdiction of the Court by way of a motion to lift the freeze order filed through his counsel.

On July 1993, the Sandiganbayan ordered the issuance of a writ of attachment against the L/C as security for the satisfaction of judgment. The Sandiganbayan ruled:
1) Although there was no separate was attached to the motion, the motion itself contained all the requisites of an affidavit, and the verification thereof is deemed a substantial compliance of Rule 57, Section 3.
2) Fiduciary relationship exists between Chuidian and ARCI but not with the Republic. Hence, the Republic cannot invoke Sec. 1(b) of Rule 57.
3) There was a prima facie case of fraud committed by Chuidian, justifying the issuance of the writ of attachment.  
4) The Sandiganbayan also adopted the Republic’s position that since it was compelled to pay, through Philguarantee, the bank loans taken out by Chuidian, the proceeds of which were fraudulently diverted, it is entitled to the issuance of the writ of attachment to protect its rights as creditor.
5) Chuidian’s absence from the country was considered by the Sandiganbayan to be the most compelling ground for the issuance of the writ.

Almost four (4) years after the issuance of the order of attachment, Chuidian filed a motion to lift the attachment based on the following grounds:  
1) He had returned to the Philippines, and considering that his absence was the most compelling ground for the issuance of the writ, the latter should be lifted.
2) There was no evidence at all of initial fraud or subsequent concealment except for the affidavit submitted by the PCGG Chairman whose statement is hearsay since he was not a witness to the litigated incidents, was never presented as a witness by the Republic and thus was not subject to cross-examination.
3) He denies that he ever disposed of his assets to defraud the Republic, and there is nothing in the records that support the Sandiganbayan’s erroneous conclusion on the matter. 
4) He was never a defendant in any other pending criminal action.
5) He was not guilty of fraud in contracting the debt or incurring the obligation. L/C was not a product of fraudulent transactions but the result of court-approved settlement.
6) Should the attachment be allowed to continue, he will be deprived of his property without due process.  The L/C was payment to Chuidian in exchange for the assets he turned over to the Republic.  Said assets had already been sold by the Republic and cannot be returned to Chuidian should the government succeed in depriving him of the proceeds of the L/C.
7) Finally, throughout the 4 years that the preliminary attachment had been in effect, the gov’t had not set the case for hearing.  The case itself should be dismissed for laches owing to the Republic’s failure to prosecute its action for an unreasonable length of time.  Accordingly, the preliminary attachment, being only a temporary or ancillary remedy, must be lifted and the PNB ordered to immediately pay the proceeds of the L/C to Chuidian.
The Republic opposed e motion and contended that allowing the foreign judgment as a basis for the lifting of the attachment would essentially amount to an abdication of the jurisdiction of the Sandiganbayan to hear and decide the ill gotten wealth cases lodged before it in deference to the judgment of foreign courts.
The Sandganbayan denied petitioner’s motion and also the latter’s subsequent MR.

ISSUE:
WON the writ of preliminary attachment should be lifted as a result of petitioner’s return to the country and his averments that there was no fraud in incurring the obligation

HELD: No
*Preliminary attachment issued upon a ground which is at the same time the applicant’s cause of action. When the preliminary attachment is issued upon a ground which is at the same time the applicant’s cause of action, the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiff’s application and affidavits on which the writ was based – and consequently that the writ based thereon had been improperly or irregularly issued – the reason being that the hearing on such a motion for dissolution of the writ would be tantamount to a trial of the merits of the action. In other words, the merits of the action would be ventilated at a mere hearing of a motion, instead of at the regular trial.

The merits of the action in which a writ of preliminary attachment has been issued are not triable on a motion for dissolution of the attachment; otherwise an applicant for the lifting of the writ could force a trial of the merits of the case on a mere motion.


There are only two ways of quashing a writ of attachment: (a) by filing a counterbound immediately; or (b) by moving to quash on the ground of improper and irregular issuance. These grounds for the dissolution of an attachment are fixed in Rule 57 of the Rules of Court and the power of the Court to dissolve an attachment is circumscribed by the grounds specified therein. Petitioner’s motion to lift attachment failed to demonstrate any infirmity or defect in the issuance of the writ of attachment; neither did he file a counterbond.

*SC ruling taken from www.scribd.com/doc/110773918/BSL-CASE-DOCTRINES-IN-CIVIL-PROCEDURE-BRONDIAL

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