Philippine Supreme Court Jurisprudence > Year 2000 > March 2000 Decisions > G.R. No. 129644 March 7, 2000 - CHINA BANKING CORP. v. COURT OF APPEALS, ET AL.:

Before us is a petition for review on certiorari assailing the decision rendered by the Court of Appeals on June 26, 1997 which affirmed the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 63199 entitled "Paulino Roxas Chua and Kiang Ming Chu Chua, Plaintiffs versus China Banking Corporation, the Sheriff of Manila and the Register of Deeds of Pasig, Defendants."cralaw virtua1aw library

The facts of the case are not in dispute:chanrob1es virtual 1aw library

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a residential land in San Juan, Metro Manila, covered by Transfer Certificate of Title No. 410603. On February 2, 1984, a notice of levy affecting the property was issued in connection with Civil Case No. 82-14134 entitled, "Metropolitan Bank and Trust Company, Plaintiff versus Pacific Multi Commercial Corporation and Alfonso Roxas Chua, Defendants," before the Regional Trial Court, Branch XLVI of Manila. The notice of levy was inscribed and annotated at the back of TCT 410603. Subsequently, Kiang Ming Chu Chua filed a complaint against the City Sheriff of Manila and Metropolitan Bank and Trust Company, questioning the levy of the abovementioned property. She alleged that the judgment of the court in Civil Case No. 82-14134 against Alfonso Roxas Chua could not be enforced against TCT 410603 inasmuch as the land subject thereof was the conjugal property of the spouses.chanrobles virtuallawlibrary

The parties thereafter entered into a compromise agreement to the effect that the levy on TCT 410603 was valid and enforceable only to the extent of the 1/2 undivided portion of the property pertaining to the conjugal share of Alfonso Roxas Chua.

Meanwhile, on June 19, 1985, petitioner China Bank filed with the Regional Trial Court of Manila, Branch 29, an action for collection of sum of money against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua which was docketed as Civil Case No. 85-31257. The complaint was anchored on three (3) promissory notes with an aggregate amount of P2,500,000.00 plus stipulated interest.

On November 7, 1985, the trial court promulgated its decision in Civil Case No. 85-31257 in favor of China Banking Corporation, the dispositive portion of which reads as follows:chanrob1es virtual 1aw library

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and against the defendants; ordering the latter to pay, jointly and severally, the former, under the first cause of action, the sum of P1,800,000.00, representing the unpaid of the promissory note, plus 21% interest per annum and an additional amount equivalent to 1/10 of 1% per day of the total amount due, as penalty both from and after October 4, 1983, until fully paid; under the second cause of action, to pay the plaintiff the amount of P350,000.00 representing the unpaid principal of the promissory note, plus 12% interest per annum and an additional amount equivalent to 1/10 of 1% per day of the total amount due, as penalty both from and after September 14, 1983, until fully paid; under the third cause of action, to pay the plaintiff the further sum of P350,000.00, representing the unpaid principal of the promissory note, plus 12% interest per annum and an additional amount equivalent to 1/10 % of 1% per day of the total amount due as penalty both from and after September 14, 1983, until fully paid; and to pay the same plaintiff the amount equivalent to 10% of the foregoing sums, as and for attorney’s fees, such amount to bear the same rate of interest as the principal obligation under each promissory note, compounded monthly, until fully paid; and to pay the costs of suit.chanrobles virtuallawlibrary:red

SO ORDERED. 1

On September 8, 1986, an alias notice of levy on execution on the one-half (�) undivided portion of TCT 410603 belonging to Alfonso Chua was issued in connection with Civil Case 82-14134. The notice was inscribed and annotated at the back of TCT 410603 on September 15, 1986 and a certificate of sale covering the one-half undivided portion of the property was executed in favor of Metropolitan Bank and Trust Company. The certificate of sale was inscribed at the back of said TCT on December 22, 1987.

Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua’s appeal was dismissed by the Court of Appeals on September 29, 1988 for failure to file brief. 2

On November 21, 1988, Alfonso Roxas Chua executed a public instrument denominated as "Assignment of Rights to Redeem," whereby he assigned his rights to redeem the one-half undivided portion of the property to his son, private respondent Paulino Roxas Chua. 3 Paulino redeemed said one-half share on the very same day. The instrument was inscribed at the back of TCT 410603 as Entry No. 7629, and the redemption of the property by Paulino was inscribed as Entry No. 7630, both dated March 14, 1989. 4

On the other hand, in connection with Civil Case No. 85-31257, another notice of levy on execution was issued on February 4, 1991 by the Deputy Sheriff of Manila against the right and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a certificate of sale on execution dated April 13, 1992 was issued by the Sheriff of Branch 39, RTC Manila in Civil Case No. 85-31257, in favor of China Bank and inscribed at the back of TCT 410603 as Entry No. 01896 on May 4, 1992. 5

On May 20, 1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted Civil Case No. 63199 before the RTC of Pasig, Metro Manila against China Bank, averring that Paulino has a prior and better right over the rights, title, interest and participation of China Banking Corporation in TCT 410603; that Alfonso Roxas Chua sold his right to redeem one-half (�) of the aforesaid conjugal property in his favor on November 21, 1988 while China Banking Corporation acquired its right from the notice of levy of execution dated January 30, 1991; that the assignment of rights in his favor was annotated at the back of TCT 410603 on March 14, 1989 and inscribed as Entry No. 7629, and his redemption of the property was effected in an instrument dated January 11, 1989 and inscribed and annotated at the back of TCT 410603 on March 14, 1989, two years before the annotation of the rights of China Banking Corporation on TCT 410603 on February 4, 1991.chanrobles.com : law library

The trial court rendered a decision on July 15, 1994 in favor of private respondent Paulino Roxas Chua and against China Banking Corporation, the decretal portion of which reads:chanrob1es virtual 1aw library

WHEREFORE, foregoing premises considered, this Court finds sufficient preponderance of evidence against defendants in favor of plaintiffs and therefore render (sic) judgment ordering defendant to pay plaintiffs:chanrob1es virtual 1aw library

a) P100,000.00 as moral damages and P50,000.00 as exemplary damages plus 12% interest per annum to start from the date of this decision until fully paid;

b) P100, 000.00 attorney ‘s fee; and

c) the cost of the suit.

The writ of preliminary injunction issued by this Court on 30 June 1993 enjoining China Banking Corporation, the Sheriff of Manila and the Register of Deeds of San Juan, their officers, representatives, agents or persons acting on their behalf from causing the transfer of possession, ownership and certificate of title or otherwise disposing of the property covered by TCT No. 410603 in favor of defendant bank or to any other person is hereby made permanent. The Register of Deeds of San Juan, Metro Manila is also hereby ordered to cancel all annotations in TCT No. 410603 in favor of defendant China Banking Corporation adverse to the rights and interest of plaintiffs.

SO ORDERED. 6

The trial court ruled that the assignment was made for a valuable consideration and was executed two years before petitioner China Bank levied the conjugal share of Alfonso Roxas Chua on TCT 410603. The trial court found that Paulino redeemed the one-half portion of the property, using therefor the amount of P100,000.00 which he withdrew from his savings account as evidenced by his bankbook and the receipts of Metrobank for his payment of the redemption price. The court noted that Paulino at that time was already of age and had his own source of income.chanrobles virtuallawlibrary:red

On appeal, the Court of Appeals affirmed the ruling of the trial court. It held that petitioner China Bank had been remiss in the exercise of its rights as creditor; and that it should have exercised its right of redemption under Sections 29 and 30, Rule 39 of the Rules of Court.

The issues raised by petitioner before us essentially boil down to whether or not the assignment of the right of redemption made by Alfonso Roxas Chua in favor of private respondent Paulino was done to defraud his creditors and may be rescinded under Article 1387 of the Civil Code.

Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them, are rescissible.

The existence of fraud or intent to defraud creditors may either be presumed in accordance with Article 1387 of the Civil Code or duly proved in accordance with the ordinary rules of evidence. Article 1387 reads:chanrob1es virtual 1aw library

ARTICLE 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienation by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.

Hence, the law presumes that there is fraud of creditors when:chanrob1es virtual 1aw library

a) There is alienation of property by gratuitous title by the debtor who has not reserved sufficient property to pay his debts contracted before such alienation; or

b) There is alienation of property by onerous title made by a debtor against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission.chanrobles.com : virtual law library

After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only property that Alfonso Roxas Chua had was his right to redeem the same, it forming part of his patrimony. "Property" under civil law comprehends every species of title, inchoate or complete, legal or equitable.

Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas Chua, in 1988. Thereafter, Paulino redeemed the property and caused the annotation thereof at the back of TCT 410603. This preceded the annotation of the levy of execution in favor of China Bank by two (2) years and the certificate of sale in favor of China Bank by more than three (3) years. On this basis, the Court of Appeals concluded that the allegation of fraud made by petitioner China Bank is vague and unsubstantiated.

Such conclusion, however, runs counter to the law applicable in the case at bar. Inasmuch as the judgment of the trial court in favor of China Bank against Alfonso Roxas Chua was rendered as early as 1985, there is a presumption that the 1988 sale of his property, in this case the right of redemption, is fraudulent under Article 1387 of the Civil Code. The fact that private respondent Paulino Roxas Chua redeemed the property and caused its annotation on the TCT more than two years ahead of petitioner China Bank is of no moment. As stated in the case of Cabaliw v. Sadorra, 7 "the parties here do not stand in equipoise, for the petitioners have in their favor, by a specific provision of law, the presumption of fraudulent transaction which is not overcome by the mere fact that the deeds of sale were in the nature of public instruments."cralaw virtua1aw library

This presumption is strengthened by the fact that the conveyance has virtually left Alfonso’s other creditors with no other property to attach. It should be noted that the presumption of fraud or intention to defraud creditors is not just limited to the two instances set forth in the first and second paragraphs of Article 1387 of the Civil Code. Under the third paragraph of the same article, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. In the early case of Oria v. Mcmicking, 8 the Supreme Court considered the following instances as badges of fraud:chanrob1es virtual 1aw library

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially.

6. The fact that the transfer is made between father and son, when there are present other of the above circumstances.chanrobles virtua| |aw |ibrary

7. The failure of the vendee to take exclusive possession of all the property. (Emphasis provided)

Before China Bank obtained judgment against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas Chua had only his one-half share of the conjugal property in question to pay his previous creditor, Metrobank. Even his son, private respondent Paulino Roxas Chua himself, knew this as shown by the following excerpts of his testimony during the trial:chanrob1es virtual 1aw library

Q: You said that month before or October 1988 your father approached you regarding his problem with respect to his property, subject of this case, can you tell us what in particular did he tell you about Metrobank?

A: He told me about his problem with Metrobank, about the loan with Metrobank and Metrobank gonna foreclose his property.



Q: What did your father tell you regarding his problem?

A: He told me about Metrobank, our house will gonna foreclose (sic). He cannot pay Metrobank anymore. His business is down. 9

Despite Alfonso Roxas Chua’s knowledge that it is the only property he had which his other creditors could levy, he still assigned his right to redeem his one-half share of the conjugal property in question from Metrobank in favor of his son, Paulino. Alfonso’s intent to defraud his other creditors, specifically, China Bank, becomes even more apparent when we take into consideration the fact that immediately after the Court of Appeals rendered its Resolution dated September 29, 1988, dismissing the appeal of Pacific Multi-Agro and Alfonso Roxas Chua in CA-G.R. No. CV-14681 entitled, "China Banking Corporation, Plaintiff-Appellee versus Pacific Multi Agro-Industrial Corporation, Et Al., Defendants-Appellants," 10 he assigned his right to redeem one-half of the conjugal property to his son on November 21, 1988.

The Court of Appeals, however, maintained that although the transfer was made between father and son, the conveyance was not fraudulent since Paulino had indeed paid the redemption price of P1,463,375.39 to Metrobank and the sum of P100,000.00 to his father. The Court of Appeals reiterated the findings of the trial court that Paulino at that time had his own source of income, having been given HK$1 Million by his maternal grandmother which he used to invest in a buy-and-sell business of stuffed toys.chanrobles.com : virtual law library

It bears emphasis that it is not sufficient that the conveyance is founded on a valuable consideration. In the case of Oria v. Mcmicking, 11 we had occasion to state that "In determining whether or not a certain conveyance is fraudulent the question in every case is whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it conserves to the debtor a special right. It is not sufficient that it is founded on good considerations or is made with bona fide intent: it must have both elements. If defective in either of these, although good between the parties, it is voidable as to creditors. . . . The test as to whether or not a conveyance is fraudulent is, does it prejudice the rights of creditors?"

The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Article 1387 of the Civil Code. There has to be a valuable consideration and the transaction must have been made bona fide.

In the case at bar, the presumption that the conveyance is fraudulent has not been overcome. At the time a judgment was rendered in favor of China Bank against Alfonso and the corporation, Paulino was still living with his parents in the subject property. Paulino himself admitted that he knew his father was heavily indebted and could not afford to pay his debts. The transfer was undoubtedly made between father and son at a time when the father was insolvent and had no other property to pay off his creditors. Hence, it is of no consequence whether or not Paulino had given valuable consideration for the conveyance.chanroblesvirtuallawlibrary

With regard to the finding of the Court of Appeals that petitioner was remiss in its duties for not having availed of redemption under Rule 39 of the Rules of Court, it should be borne in mind that petitioner is not limited to the procedure outlined in Rule 39 of the Rules of Court to enforce its claim against its debtor Alfonso Roxas Chua. Verily, Article 1387 of the Civil Code clearly states that conveyances made by the debtor to defraud his creditor may be rescinded.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction enjoining petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their officers, representatives, agents and persons acting on their behalf from causing the transfer of possession, ownership and title of the property covered by TCT No. 410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem dated November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino Roxas Chua is ordered RESCINDED. The levy on execution dated February 4, 1991 and the Certificate of Sale dated April 30, 1992 in favor of petitioner are DECLARED VALID against the one-half portion of the subject property.

SO ORDERED.

Davide, Jr., C.J., Puno and Kapunan, JJ., concur.

Pardo, J., on official business abroad.

Endnotes:

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1. Records, p. 89.

2. Records, p. 90.

3. Records, p. 154.

4. Records, p. 54.

5. Records, p. 55.

6. Records, p. 289.

7. 64 SCRA 310, 316 (1975).

8. 21 Phil. 243, 250-51 (1912).

9. TSN, January 14, 1994, p. 20.

10. Records, p. 35.

11. Supra, at 250.