G.R. No. 219345, January 30, 2017
SECURITY BANK CORPORATION, Petitioner, vs. GREAT WALL COMMERCIAL PRESS COMPANY, INC., ALFREDO BURIEL ATIENZA, FREDINO CHENG ATIENZA and SPS. FREDERICK CHENG ATIENZA and MONICA CU ATIENZA, Respondents.

FACTS

Petitioner Security Bank Corporation filed a Complaint for Sum of Money with an application for a writ of preliminary attachment against respondents, alleging their failure to pay obligations under a credit facility covered by trust receipts and surety agreements. The bank contended that respondents’ failure to remit proceeds or return the goods under the trust receipts constituted fraud. The Regional Trial Court (RTC) granted the application and issued the writ.
Respondents moved to lift the writ, arguing the application lacked a prima facie basis and failed to allege specific circumstances showing fraudulent intent, noting their efforts to negotiate a loan restructuring. The RTC denied the motion, finding fraud in the performance of the obligation as respondents violated trust receipt agreements without explanation. The Court of Appeals (CA) reversed the RTC, lifting the writ. The CA ruled that mere non-payment or non-compliance with trust receipts does not, by itself, equate to fraud, and that respondents’ repayment proposal negated fraudulent intent. Security Bank elevated the case to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in nullifying the writ of preliminary attachment issued by the trial court.

RULING

Yes, the Supreme Court reversed the CA and reinstated the writ of preliminary attachment. The legal logic centers on the distinction between fraud in the execution of a contract and fraud in the performance of an obligation. A writ of preliminary attachment is a provisional remedy granted when the case falls under specific grounds in Section 1, Rule 57 of the Rules of Court, including “fraud in contracting the debt or incurring the obligation upon which the action is brought.”
The Court clarified that the ground “fraud in contracting the debt” encompasses fraud committed not only at the inception (execution) but also during the performance of the obligation. Here, Security Bank sufficiently alleged and substantiated fraud in the performance. Respondents executed trust receipts, received the goods or proceeds, and then willfully failed to account for them or remit payments as obligated, despite demands. This deliberate failure to turn over the goods or proceeds, which were held in trust, constituted a clear act of bad faith and fraud in the performance of their contractual duties.
The CA erred in concluding that fraud must be present only at the time of contracting. The respondents’ subsequent act of offering a repayment proposal was correctly deemed by the petitioner as a mere subterfuge, as they failed to follow through substantively. The Supreme Court emphasized that allegations and evidence of such deliberate non-performance, violating a trust, provided a factual and legal basis for the ancillary writ. The finding is provisional and does not prejudge the main case.