FCY Construction Group, Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Private respondent Ley Construction and Development Corporation filed a complaint for collection of a sum of money with an application for preliminary attachment against petitioners FCY Construction Group, Inc. and its President, Francis C. Yu. The dispute arose from a joint venture agreement concerning the Tandang Sora Commonwealth Flyover government project, wherein Ley Construction alleged it provided funds and materials and was entitled to half of the project's collections, both past and future. Ley Construction further alleged that the petitioners fraudulently incurred the obligation and misapplied project funds. Procedural History: The Makati Regional Trial Court issued a writ of preliminary attachment upon Ley Construction's ex-parte motion and posting of a bond. Petitioners moved to lift the writ, arguing it was issued and implemented before service of summons, that a copy of the affidavit of merit was not served, and that no fraud was committed. The trial court denied the motion to lift but limited the attachment to receivables from the project. Petitioners' subsequent motion for reconsideration and omnibus motion were also denied. They then filed a petition for certiorari with the Court of Appeals, which was also denied, as was their motion for reconsideration, leading to the instant petition. The Petition: Petitioners seek review of the Court of Appeals' decision, primarily arguing that the writ of preliminary attachment was irregularly issued because there was no evidence of fraud in contracting the obligation, as required by Section 1(d), Rule 57 of the Revised Rules of Court. They contend that any alleged inducement by government officials or the circumstances of the joint venture agreement's execution occurred after the obligation was incurred. Petitioners also question the personal liability of Francis Yu, arguing that corporate officers are generally not personally liable for corporate acts unless specific exceptions apply. The petition asserts that the fraud alleged by the respondent was not committed at the inception of the obligation.
Issue(s)
Whether the writ of preliminary attachment was irregularly issued on the ground of fraud in contracting the obligation. Whether petitioner Francis C. Yu should be dropped as a party-defendant.
Ruling
The Supreme Court dismissed the petition. It affirmed the issuance of the writ of preliminary attachment, holding that the grounds for its issuance were intertwined with the cause of action, and thus could not be dissolved by a motion to lift. It also held that the issue of Francis C. Yu's personal liability should be threshed out during the trial on the merits.
Ratio Decidendi
On the first issue of the writ of preliminary attachment: The Court reiterated that a writ of preliminary attachment may be issued under Section 1(d) of Rule 57 of the Revised Rules of Court when a party is guilty of fraud in contracting the debt or incurring the obligation. The petitioners insisted that there was no fraud, pointing to assurances from Department of Public Works and Highways (DPWH) officials and the preparation of the joint venture agreement by the private respondent. However, the Court found that these assurances and the written confirmation of the agreement occurred during the performance or after the inception of the obligation, not at the time of contracting the obligation, which is the relevant period for establishing fraud under the cited rule. The Court emphasized that to sustain an attachment on the ground of fraud, it must be shown that the debtor intended to defraud the creditor at the time of contracting the debt, and that this fraud induced the other party to give consent. The Court also noted that petitioners had paid substantial amounts for labor, materials, and cash advances, but not profits, which was what the private respondent was claiming. Furthermore, the Court applied the ruling in Liberty Insurance Corporation and Mindanao Savings and Loan Assoc., stating that when the ground for attachment is also the applicant's cause of action (like fraud in contracting the debt), the defendant cannot move to dissolve the attachment by merely showing the falsity of the factual averments, as this would require a trial on the merits. The only remedy in such a case is to post a counterbond. On the second issue of Francis C. Yu's inclusion as a party-defendant: The Court agreed with the petitioners' general argument that corporate officers are generally not personally liable for corporate acts due to the separate juridical personality of a corporation. However, it clarified that there are exceptions where corporate officers may be held personally liable, such as assenting to patently unlawful acts, bad faith or gross negligence, conflict of interest, consenting to watered-down stocks, agreeing to be personally liable, or being made liable by specific legal provisions. The Court held that whether these exceptions apply to Francis C. Yu could not be determined at the preliminary stage and must be threshed out during the trial on the merits, leaving the matter to the trial court's discretion based on evidence presented during the trial.
Main Doctrine
A writ of preliminary attachment issued on the ground that is also the applicant's cause of action, such as fraud in contracting the obligation, cannot be dissolved by a motion to lift based on the falsity of the factual averments, as this would entail a trial on the merits. The only remedy is to post a counterbond.