CHINA BANKING CORPORATION v CA
Hence, the law presumes that there is fraud of creditors
327 SCRA 378 March 7, 2000
YNARES-SANTIAGO, J.:
FACTS:
In connection with a civil case filed by Metropolitan Bank and Trust Company against
the Pacific Multi Commercial Corporation and Alfonso Roxas Chua, a notice of levy
was issued affecting the residential land, a conjugal property, of Alfonso Roxas Chua
and his wife Kiang Ming Chu Chua. The levy is only to the extent of the undivided
portion of the property pertaining to the conjugal share of Alfonso Roxas Chua.
Meanwhile, in 1985, the trial court rendered another decision in favor of China Banking
Corporation against Alfonso in a collection case.
A certificate of sale covering ½ of the undivided portion of the property was executed in
favor of MBTC. In 1988, Alfonso executed “Assignment of Right to Redeem” to his son
Paulino who redeemed the said property on the same day. On the other hand, in 1991, a
notice of levy on execution was issued on the same property. Thereafter, a certificate
of sale on execution was issued to China Bank in 1992. Paulino instituted a civil case
arguing that he has a better right over the title of China Bank, the property having been
redeemed by him in 1988 while China Bank acquired its right in 1991. The trial court
ruled that the assignment was made for a valuable consideration and was executed two
years before China Bank levied the conjugal share of Chua. China Bank argued that the
assignment of right of redemption made by Alfonso to Paulino was done in fraud of
creditors and may be rescinded under Article 1387, NCC.
ISSUE:
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may be rescinded under Article 1387 of the Civil Code.
HELD:
YES. The assignment was done in fraud of creditors. China Bank is, therefore entitled to
rescind the same. 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 with intent to defraud creditor may either
be presumed in accordance with Article 1387, NCC or duly proved in accordance with
the ordinary rules of evidence.
when:
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.
Inasmuch as the judgment of the trial court in favor of China Bank against Alfonso 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 redeemed the property and caused its annotation on
the TCT more than two years ahead of petitioner China Bank is of no moment.
It bears emphasis that it is not sufficient that the conveyance is founded on a
valuable consideration. In the case of Oria vs. 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. x x x The test as to whether or not
a conveyance is fraudulent is, does it prejudice the rights of creditors?"
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.