VOL. 355, MARCH 28, 2001 701
Court of
Khe Hong Cheng vs. Court of Appeals
G.R. No. 144169. March 28, 2001. * lowing requisites must concur: 1) That the plaintiff asking for
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE
and RAY STEVEN KHE, petitioners, vs. COURT OF
APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI
CITY and PHILAM INSURANCE CO., INC., respondents.
Actions; Rescission; Accion Pauliana; Obligations and
Contracts; Prescription; Since Article 1389 of the Civil Code is silent
as to when the prescriptive period would commence, the general rule,
i.e., from the moment the cause of action accrues, therefore, applies.—
Article 1389 of the Civil Code simply provides that, “The action to
claim rescission must be commenced within four years.” Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e., from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive: Art. 1150. The time for prescription for all
kinds of actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting
point for the computation of the prescriptive period for the action.
Same; Same; Same; Requisites; An action to rescind or an
accion pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven futile.—
Article 1383 of the Civil Code provides as follows: Art. 1383. An
action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same. It is thus apparent that an action to rescind
or an accion pauliana must be of last resort, availed of only after all
other legal remedies have been exhausted and have been proven
futile. For an accion pauliana to accrue, the fol-
_______________
* FIRST DIVISION.
702
702 SUPREME COURT
REPORTS ANNOTATED
Khe Hong Cheng vs.
Appeals
rescission has a credit prior to the alienation, although demandable
later; 2) That the debtor has made a subsequent contract conveying
a patrimonial benefit to a third person; 3) That the creditor has no
other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person; 4) That the act being
impugned is fraudulent; 5) That the third person who received the
property conveyed, if by onerous title, has been an accomplice in the
fraud.
Same; Same; Same; Prescription; Land Titles; To count the
four-year period to rescind an allegedly fraudulent contract from the
date of registration of the conveyance with the Register of Deeds
would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence.—Petitioners’ argument that the Civil Code must
yield to the Mortgage and Registration Laws is misplaced, for in no
way does this imply that the specific provisions of the former may
be all together ignored. To count the four-year prescriptive period to
rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as alleged
by the petitioners, would run counter to Article 1383 of the Civil
Code as well as settled jurisprudence. It would likewise violate the
third requisite to file an action for rescission of an allegedly
fraudulent conveyance of property, i.e., the creditor has no other
legal remedy to satisfy his claim.
Same; Same; Same; Same; An accion pauliana presupposes the
following—1) a judgment; 2) the issuance by the trial court of a writ
of execution for the satisfaction of the judgment; and 3) the failure of
the sheriff to enforce and satisfy the judgment of the court.—
An accion pauliana thus presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment; and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor. The date of the
decision of the trial court is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent alienation
by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became
indebted to the creditor.
 Same; Same; Same; Same; Where the judgment creditor filed
its complaint for accion pauliana barely a month from its discovery
that the defendant had no other property to satisfy the judgment
award against him, its action for rescission of the deeds of donation
clearly had not yet prescribed.—As mentioned earlier, respondent
Philam only learned about the
703
VOL. 355, MARCH 28, 703
2001
Khe Hong Cheng vs. Court of
Appeals
unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was
only then that respondent Philam’s action for rescission of the deeds
of donation accrued because then it could be said that respondent
Philam had exhausted all legal means to satisfy the trial court’s
judgment in its favor. Since respondent Philam filed its complaint
for accion pauliana against petitioners on February 25, 1997, barely
a month from its discovery that petitioner Khe Hong Cheng had no
other property to satisfy the judgment award against him, its action
for rescission of the subject deeds clearly had not yet prescribed.
Same; Venue; Where the defendant failed to either file a motion
to dismiss on the ground of improper venue or include the same as
an affirmative defense in its answer, it is deemed to have waived its
right to object to improper venue.—Petitioners now belatedly raise
on appeal the defense of improper venue claiming that respondent
Philam’s complaint is a real action and should have been filed with
the RTC of Butuan City since the property subject matter of the
donations are located therein. Suffice it to say that petitioners are
already deemed to have waived their right to question the venue of
the instant case. Improper venue should be objected to as follows 1)
in a motion to dismiss filed within the time but before the filing of
the answer; or 2) in the answer as an affirmative defense over which,
in the discretion of the court, a preliminary hearing may be held as
if a motion to dismiss had been filed. Having failed to either file a
motion to dismiss on the ground of improper venue or include the
same as an affirmative defense in their answer, petitioners are
deemed to have waived their right to object to improper venue.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Nelbert T. Poculan for petitioners.
Linsangan Law Office for private respondent.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under
Rule 45, seeking to set aside the decision of the Court of
Appeals
704
704 SUPREME COURT REPORTS
ANNOTATED
Khe Hong Cheng vs. Court of Appeals
dated April 10, 2000 and its resolution dated July 11, 2000
denying the motion for reconsideration of the aforesaid
decision. The original complaint that is the subject matter of
this case is an accion pauliana—an action filed by Philam
Insurance Company, Inc. (respondent Philam) to rescind or
annul the donations made by petitioner Khe Hong Cheng
allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already
prescribed. While the first paragraph of Article 1389 of the
Civil Code states: “The action to claim rescission must be
commenced within four years . . .” the question is, from which
point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner
of Butuan Shipping Lines. It appears that on or about October
4, 1985, the Philippine Agricultural Trading Corporation
shipped on board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate,
Masbate, for delivery to Dipolog City, Zamboanga del Norte.
The said shipment of copra was covered by a marine insurance 1. 1)the sum of P354,000.00 representing the amount paid by
policy issued by American Home Insurance Company the plaintiff to the Philippine Agricultural Trading
(respondent Philam’s assured). M/V PRINCE ERIC, however, Corporation with legal interest at 12% from the time of the
sank somewhere between Negros Island and Northeastern filing of the complaint in this case;
2. 2)the sum of P50,000.00 as attorney’s fees;
Mindanao, resulting in the total loss of the shipment. Because
3. 3)the costs. 1

of the loss, the insurer, American Home, paid the amount of

P354,000.00 (the value of the copra) to the consignee.
After the said decision became final and executory, a writ of
Having been subrogated into the rights of the consignee,
execution was forthwith issued on September 14, 1995. Said
American Home instituted Civil Case No. 13357 in the
writ of execution, however, was not served. An alias writ of
Regional Trial Court (RTC) of Makati, Branch 147 to recover
execution was, thereafter, applied for and granted in October
the money paid to the consignee, based on breach of contract
1996. Despite earnest efforts, the sheriff found no property
of carriage. While the case was still pending, or on December
under the name of Butuan Shipping Lines and/or petitioner
20, 1989, petitioner Khe Hong Cheng executed deeds of
Khe Hong Cheng to levy or garnish for the satisfaction of the
donations of parcels of land in favor of his children, herein co-
trial court’s decision. When the sheriff, accompanied by
petitioners Sandra Joy and Ray Steven. The parcel of land
counsel of respondent Philam, went to Butuan City on
with an area of 1,000 square meters covered by Transfer
January 17, 1997, to enforce the alias writ of execution, they
Certificate of Title (TCT) No. T-3816 was donated to Ray
discovered that petitioner Khe Hong Cheng no longer had any
Steven. Petitioner Khe Hong Cheng likewise donated in favor
property and that he had conveyed the subject properties to
of Sandra Joy two (2) parcels of land located in Butuan City,
his children.
covered by TCT No. RT-12838. On the basis of said deeds, TCT
On February 25, 1997, respondent Philam filed a complaint
No. T-3816
705
with the Regional Trial Court of Makati City, Branch 147, for
VOL. 355, MARCH 28, 2001 705 the rescission of the deeds of donation executed by petitioner
Khe Hong Cheng in favor of his children and for the
Khe Hong Cheng vs. Court of Appeals
nullification of their titles (Civil Case No. 97-415). Respondent
was cancelled and in lieu thereof, TCT No. T-5072 was issued
Philam alleged, inter
in favor of Ray Steven and TCT No. RT-12838 was cancelled _______________
and in lieu thereof, TCT No. RT-21054 was issued in the name
of Sandra Joy. 1 Rollo, pp. 106-107.
The trial court rendered judgment against petitioner Khe 706
Hong Cheng in Civil Case No. 13357 on December 29, 1993, 706 SUPREME COURT REPORTS
four years after the donations were made and the TCTs were ANNOTATED
registered in the donees’ names. The decretal portion of the Khe Hong Cheng vs. Court of Appeals
aforesaid decision reads:
alia, that petitioner Khe Hong Cheng executed the aforesaid
“Wherefore, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant, deeds in fraud of his creditors, including respondent Philam. 2

ordering the latter to pay the former: Petitioners subsequently filed their answer to the
complaint a quo. They moved for its dismissal on the ground
that the action had already prescribed. They posited that the
registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint a
quo was filed only on February 25, 1997, or more than four (4)
years after said registration, the action was already barred by
prescription. 3
Acting thereon, the trial court denied the motion to dismiss.
It held that respondent Philam’s complaint had not yet
prescribed. According to the trial court, the prescriptive period
began to run only from December 29, 1993, the date of the
decision of the trial court in Civil Case No. 13357. 4
On appeal by petitioners, the CA affirmed the trial court’s
decision in favor of respondent Philam. The CA declared that
the action to rescind the donations had not yet prescribed.
Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action
for rescission began to run only in January 1997, and not when
the decision in the civil case became final and executory on
December 29, 1993. The CA reckoned the accrual of
respondent Philam’s cause of action on January 1997, the time
when it first learned that the judgment award could not be
satisfied because the judgment creditor, petitioner Khe Hong
Cheng, had no more properties in his name. Prior thereto,
respondent Philam had not yet exhausted all legal means for
the satisfaction of the decision in its favor, as prescribed under
Article 1383 of the Civil Code. 5
The Court of Appeals thus denied the petition for certiorari
filed before it, and held that the trial court did not commit any
error in denying petitioners’ motion to dismiss. Their motion
for reconsideration was likewise dismissed in the appellate
court’s resolution dated July 11, 2000.
______________
2 Id., at 50-55.
3 Id., at 57-60.
4 Id., at 70-71.
5 Id., at 44-47.
707
VOL. 355, MARCH 28, 2001 707
Khe Hong Cheng vs. Court of Appeals
Petitioners now assail the aforesaid decision and resolution of
the CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN
GRAVE ABUSE OF DISCRETION WHEN IT DENIED THE
PETITION TO DISMISS THE CASE BASED ON THE GROUND
OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO RUN
WHEN IN JANUARY 1997 THE SHERIFF WENT TO BUTUAN
CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX
KHE CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO.
13357 AND FOUND OUT THAT AS EARLY AS DEC. 20, 1989,
PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE
ACTION FOR RESCISSION ACCRUED BECAUSE
PRESCRIPTION BEGAN TO RUN WHEN THESE DONATIONS
WERE REGISTERED WITH THE REGISTER OF DEEDS IN
DECEMBER 1989, AND WHEN THE COMPLAINT WAS FILED
ONLY IN FEBRUARY 1997, MORE THAN FOUR YEARS HAVE
ALREADY LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED. 6
Essentially, the issue for resolution posed by petitioners is
this: When did the four (4) year prescriptive period as provided
for in Article 1389 of the Civil Code for respondent Philam to
file its action for rescission of the subject deeds of donation
commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, “The
action to claim rescission must be commenced within four
years.” Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e.,
from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly
instructive:
______________
6 Id., at 16.
708
708 SUPREME COURT REPORTS
ANNOTATED
Khe Hong Cheng vs. Court of Appeals
Art. 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the
starting point for the computation of the prescriptive period
for the action. Article 1383 of the Civil Code provides as
7 Indeed, an accion pauliana presupposes a judgment and the
follows:
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven
futile. For an accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to the
alienation, although demandable later; 2) That the debtor has made
a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to the third
person; 4) That the act being impugned is fraudulent; 5) That the
third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud. (Emphasis ours)
8 follows:
We quote with approval the following disquisition of the CA on
the matter:
An accion pauliana accrues only when the creditor discovers that he
has no other legal remedy for the satisfaction of his claim against
the debtor other than an accion pauliana. The accion pauliana is an
action of a last resort. For as long as the creditor still has a remedy
at law for the enforcement of his claim against the debtor, the
creditor will not have any cause of action against the creditor for
rescission of the contracts entered
_______________
7Constancia C. Tolentino vs. CA, et al., 162 SCRA 66, 72.
8Siguan vs. Lim, 318 SCRA 725, 735, quoting TOLENTINO, ARTURO M.,
CIVIL CODE OF THE PHILIPPINES 576 (1991); citing 8 Manresa 756, 2
Castan 543-555, and 3 Camus 207.
709
VOL. 355, MARCH 28, 2001 709
Khe Hong Cheng vs. Court of Appeals
into by and between the debtor and another person or persons.
issuance by the trial court of a writ of execution for the satisfaction
of the judgment and the failure of the Sheriff to enforce and satisfy
the judgment of the court. It presupposes that the creditor has
exhausted the property of the debtor. The date of the decision of the
trial court against the debtor is immaterial. What is important is
that the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the decision of the
trial court against the debtor will retroact to the time when the
debtor became indebted to the creditor. 9
Petitioners, however, maintain that the cause of action of
respondent Philam against them for the rescission of the deeds
of donation accrued as early as December 27, 1989, when
petitioner Khe Hong Cheng registered the subject conveyances
with the Register of Deeds. Respondent Philam allegedly had
constructive knowledge of the execution of said deeds under
Section 52 of Presidential Decree No. 1529, quoted infra, as
Section 52. Constructive knowledge upon registration.—Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice
to all persons from the time of such registering, filing, or entering.
Petitioners’ argument that the Civil Code must yield to the
Mortgage and Registration Laws is misplaced, for in no way
does this imply that the specific provisions of the former may
be all together ignored. To count the four year prescriptive
period to rescind an allegedly fraudulent contract from the
date of registration of the conveyance with the Register of
Deeds, as alleged by the petitioners, would run counter to
Article 1383 of the Civil Code as well as settled jurisprudence.
It would likewise violate the third requisite to file an action for
rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor has no other legal remedy to satisfy
his claim.
_______________
9 See Note 1, at 44-45.
710
710 SUPREME COURT REPORTS
ANNOTATED
Khe Hong Cheng vs. Court of Appeals
An accion pauliana thus presupposes the following: 1) A
judgment; 2) the issuance by the trial court of a writ of
execution for the satisfaction of the judgment; and 3) the
failure of the sheriff to enforce and satisfy the judgment of the
court. It requires that the creditor has exhausted the property
of the debtor. The date of the decision of the trial court is
immaterial. What is important is that the credit of the plaintiff
antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the
debtor will retroact to the time when the debtor became
indebted to the creditor.
Tolentino, a noted civilist, explained:
“x x x [T]herefore, credits with suspensive term or condition are
excluded, because the accion pauliana presupposes a judgment and
unsatisfied execution, which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought. Rescission
is a subsidiary action, which presupposes that the creditor has
exhausted the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with
retroactive effect to the date when the credit was constituted.” 10
These principles were reiterated by the Court when it
explained the requisites of an accion pauliana in greater
detail, to wit:
“The following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all the
rights and actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion pauliana). Without
availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco
Bareg’s transmissible rights and actions, petitioners simply
undertook the third
_______________
10 Tolentino, New Civil Code, Volume IV, 1973, ed., at p. 543.
711
VOL. 355, MARCH 28, 2001 711
Khe Hong Cheng vs. Court of Appeals
measure and filed an action for annulment of sale. This cannot be
done.” (Emphasis ours)
11
In the same case, the Court also quoted the rationale of the CA
when it upheld the dismissal of the accion pauliana on the
basis of lack of cause of action:
“In this case, plaintiffs-appellants had not even commenced an
action against defendants-appellees Bareng for the collection of the
alleged indebtedness. Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng. Plaintiffs-
appellants, in seeking the rescission of the contracts of sale entered
into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which they
could have collected this (sic) debts.” (Emphasis ours)
Even if respondent Philam was aware, as of December 27,
1989, that petitioner Khe Hong Cheng had executed the deeds
of donation in favor of his children, the complaint against
Butuan Shipping Lines and/or petitioner Khe Hong Cheng
was still pending before the trial court. Respondent Philam
had no inkling, at the time, that the trial court’s judgment
would be in its favor and further, that such judgment would
not be satisfied due to the deeds of donation executed by
petitioner Khe Hong Cheng during the pendency of the case.
Had respondent Philam filed his complaint on December 27,
1989, such complaint would have been dismissed for being
premature, Not only were all other legal remedies for the
enforcement of respondent Philam’s claims not yet exhausted
at the time the deeds of donation were executed and
registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more
property other than those covered by the subject deeds to
satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even
expressly declared and represented that he had reserved to
himself property sufficient to answer for his debts contracted
prior to this date:
_______________
11 Adorable vs. CA, 319 SCRA 201, 207 (1999).
712
712 SUPREME COURT REPORTS
ANNOTATED
Khe Hong Cheng vs. Court of Appeals
“That the DONOR further states, for the same purpose as expressed
in the next preceding paragraph, that this donation is not made with
the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this
date.”12
As mentioned earlier, respondent Philam only learned about
the unlawful conveyances made by petitioner Khe Hong Cheng
in January 1997 when its counsel accompanied the sheriff to
Butuan City to attach the properties of petitioner Khe Hong
Cheng. There they found that he no longer had any properties
in his name. It was only then that respondent Philam’s action
for rescission of the deeds of donation accrued because then it
could be said that respondent Philam had exhausted all legal
means to satisfy the trial court’s judgment in its favor. Since
respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a
month from its discovery that petitioner Khe Hong Cheng had
no other property to satisfy the judgment award against him,
its action for rescission of the subject deeds clearly had not yet
prescribed.
A final point. Petitioners now belatedly raise on appeal the
defense of improper venue claiming that respondent Philam’s
complaint is a real action and should have been filed with the
RTC of Butuan City since the property subject matter of the
donations are located therein. Suffice it to say that petitioners
are already deemed to have waived their right to question the
venue of the instant case. Improper venue should be objected
to as follows 1) in a motion to dismiss filed within the time but
before the filing of the answer; or 2) in the answer as an
13
affirmative defense over which, in the discretion of the court,
a preliminary hearing may be held as if a motion to dismiss
had been filed. Having failed to either file a motion to dismiss
14
on the ground of improper venue or include the same as an
affirmative defense in their answer, petitioners are deemed to
have waived their right to object to improper venue.
______________
 12 Annex “K.” Notes.—Venue relates to the place of trial and not to the
Section 1, Rule 16, 1997 Rules of Court.
jurisdiction of the court. (Philippine Banking Corporation vs.
13

14 Section 6, Rule 16, 1997 Rules of Court.

Tensuan, 230 SCRA 413 [1994])

713 Convenience is the raison d’etre of the rule on venue. (Uy
VOL. 355, MARCH 30, 2001 713 vs. Contreras, 237 SCRA 167 [1994])
People vs. Sinco The action to rescind contracts in fraud of creditors is
WHEREFORE, premises considered, the petition is hereby known as accion pauliana. (Siguan vs. Lim, 318 SCRA
DENIED for lack of merit. 725 [1999])
SO ORDERED. The extra-judicial foreclosure sale cannot be held outside
Davide, Jr. (C.J., Chairman), Pardo and Ynares- the province where the property is situated. (Langkaan Realty
Santiago, JJ., concur. Development, Inc. vs. United Coconut Planters Bank, 347
Puno, J., On Official Leave. SCRA 542 [2000])
Petition denied. ——o0o——
 VOL. 318, NOVEMBER 19, 725
1999
Siguan vs. Lim
G.R. No. 134685. November 19, 1999. *
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM,
LINDE LIM, INGRID LIM and NEIL LIM, respondents.
Actions; Appeals; The jurisdiction of the Supreme Court in cases
brought before it from the Court of Appeals via Rule 45 of the Rules
of Court is limited to reviewing errors of law.—The rule is well
settled that the jurisdiction of this Court in cases brought before it
from the Court of Appeals via Rule 45 of the Rules of Court is limited
to reviewing errors of law. Findings of fact of the latter court are
conclusive, except in a number of instances. In the case at bar, one
of the recognized exceptions warranting a review by this Court of
the factual findings of the Court of Appeals exists, to wit, the factual
findings and conclusions of the lower court and Court of Appeals are
conflicting, especially on the issue of whether the Deed of Donation
in question was in fraud of creditors.
Same; Same; Exceptions.—In Sta. Maria v. Court of Appeals,
285 SCRA 351 (1998), the Court enumerated some of the instances
when the factual findings of the Court of Appeals are not deemed
conclusive, to wit: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made
is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings
are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on
record.
Same; Contracts; Rescission; Accion
Pauliana; Requisites; Words and Phrases; The action to rescind
contracts in fraud of creditors is known as accion pauliana.—The
action to rescind contracts in
_______________
*FIRST DIVISION.
726
726 SUPREME COURT
REPORTS ANNOTATED
Siguan vs. Lim
fraud of creditors is known as accion pauliana. For this action
to prosper, the following requisites must be present: (1) the plaintiff
asking for rescission has a credit prior to the alienation, although
demandable later; (2) the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; (3) the creditor
has no other legal remedy to satisfy his claim; (4) the act being
impugned is fraudulent; (5) the third person who received the
property conveyed, if it is by onerous title, has been an accomplice
in the fraud.
Same; Same; Same; Same; While it is necessary that the credit
of the plaintiff in the accion pauliana must exist prior to the
fraudulent alienation, the date of the judgment enforcing it is
immaterial—even if the judgment be subsequent to the alienation, it
is merely declaratory, with retroactive effect to the date when the
credit was constituted.—The general rule is that rescission requires
the existence of creditors at the time of the alleged fraudulent
alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior
existing debt, there can neither be injury nor fraud. While it is
necessary that the credit of the plaintiff in the accion pauliana must
exist prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be subsequent to
the alienation, it is merely declaratory, with retroactive effect to the
date when the credit was constituted.
Notarial Law; A deed acknowledged before a notary public is a
public document, and as such, it is evidence of the fact which gave
rise to its execution and of its date.—We are not convinced with the
allegation of the petitioner that the questioned deed was antedated
to make it appear that it was made prior to petitioner’s credit.
Notably, that deed is a public document, it having been
acknowledged before a notary public. As such, it is evidence of the
fact which gave rise to its execution and of its date, pursuant to
Section 23, Rule 132 of the Rules of Court.
Same; Words and Phrases; The phrase “all other public
documents” in the second sentence of Section 23, Rule 132 of the
Rules of Court, means those public documents other than the entries
in public records made in the performance of a duty by a public
officer, and these include notarial documents.—Petitioner’s
contention that the public documents referred to in said Section 23
are only those en-
727
VOL. 318, 727
NOVEMBER 19, 1999
Siguan vs. Lim
tries in public records made in the performance of a duty by a
public officer does not hold water. Section 23 reads: SEC. 23. Public
documents as evidence.—Documents consisting of entries in public
records made in the performance of a duty by a public officer
are prima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact
which gave rise to their execution and of the date of the latter.
(Emphasis supplied). The phrase “all other public documents” in the
second sentence of Section 23 means those public documents other
than the entries in public records made in the performance of a duty
by a public officer. And these include notarial documents, like the
subject deed of donation.
Same; Notarial documents, except last wills and testaments, are
public documents and are evidence of the facts that gave rise to their
execution and of their date.—It bears repeating that notarial
documents, except last wills and testaments, are public documents
and are evidence of the facts that gave rise to their execution and of
their date.
Same; The fact that a notarized deed was registered only after
two years from the date indicated therein is not enough to overcome
the presumption as to the truthfulness of the statement as to the
date.—In the present case, the fact that the questioned Deed was
registered only on 2 July 1991 is not enough to overcome the
presumption as to the truthfulness of the statement of the date in
the questioned deed, which is 10 August 1989. Petitioner’s claim
against LIM was constituted only in August 1990, or a year after the
questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.
Action; Rescission; Accion Pauliana; Words and Phrases; The
term “subsidiary remedy” has been defined as “the exhaustion of all
remedies by the prejudiced creditor to collect claims due him before
rescission is resorted to.”—Even assuming arguendo that petitioner
became a creditor of LIM prior to the celebration of the contract of
donation, still her action for rescission would not fare well because
the third requisite was not met. Under Article 1381 of the Civil
Code, contracts entered into in fraud of creditors may be rescinded
only when the creditors cannot in any manner collect the claims due
them. Also, Article 1383 of the same Code provides that the action
for rescission is but a subsidiary remedy which cannot be instituted
728
728 SUPREME COURT
REPORTS ANNOTATED
Siguan vs. Lim
except when the party suffering damage has no other legal
means to obtain reparation for the same. The term “subsidiary
remedy” has been defined as “the exhaustion of all remedies by the
prejudiced creditor to collect claims due him before rescission is
resorted to.” It is, therefore, essential that the party asking for
rescission prove that he has exhausted all other legal means to
obtain satisfaction of his claim. Petitioner neither alleged nor
proved that she did so. On this score, her action for the rescission of
the questioned deed is not maintainable even if the fraud charged
actually did exist.
Same; Same; Same; Donations; Frauds; Presumption of
Fraud; For the presumption of fraud under Arts. 759 and 1387 of the
Civil Code to apply, it must be established that the donor did not
leave adequate properties which creditors might have recourse for the
collection of their credits existing before the execution of the
donation.—Article 1387, first paragraph, of the Civil Code provides:
“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. Likewise, Article 759 of the
same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the
donor did not reserve sufficient property to pay his debts prior to the
donation. For this presumption of fraud to apply, it must be
established that the donor did not leave adequate properties which
creditors might have recourse for the collection of their credits
existing before the execution of the donation.
Same; Same; Same; Same; Same; Same; Badges of Fraud.—A
creditor need not depend solely upon the presumption laid down in
Articles 759 and 1387 of the Civil Code. Under the third paragraph
of Article 1387, the design to defraud may be proved in any other
manner recognized by the law of evidence. Thus in the consideration
of whether certain transfers are fraudulent, the Court has laid down
specific rules by which the character of the transaction may be
determined. The following have been denominated by the Court as
badges of fraud: (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
embar-
729
VOL. 318, 729
NOVEMBER 19, 1999
Siguan vs. Lim
rassed financially; (6) The fact that the transfer is made
between father and son, when there are present other of the above
circumstances; and (7) The failure of the vendee to take exclusive
possession of all the property.
Same; Same; Same; Same; Same; Same; Same; The
circumstances evidencing fraud are as varied as the men who
perpetrate the fraud in each case.—The above enumeration,
however, is not an exclusive list. The circumstances evidencing
fraud are as varied as the men who perpetrate the fraud in each
case. This Court has therefore declined to define it, reserving the
liberty to deal with it under whatever form it may present itself.
Same; Same; Same; Under Article 1384 of the Civil Code, only
the creditor who brought the action for rescission can benefit from
the rescission—those who are strangers to the action cannot benefit
from its effects.—It should be noted that the complainant in that
case, Victoria Suarez, albeit a creditor prior to the questioned
alienation, is not a party to this accion pauliana. Article 1384 of the
Civil Code provides that rescission shall only be to the extent
necessary to cover the damages caused. Under this Article, only the
creditor who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit from
its effects. And the revocation is only to the extent of the plaintiff
creditor’s unsatisfied credit; as to the excess, the alienation is
maintained. Thus, petitioner cannot invoke the credit of Suarez to
justify rescission of the subject deed of donation.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Florido & Associates for petitioner.
Zosa & Quijano Law Offices for private respondents.
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim
(hereafter LIM) in favor of her children be rescinded for being
in fraud of her alleged creditor, petitioner Maria Anto-
730
730 SUPREME COURT REPORTS
ANNOTATED
Siguan vs. Lim
nia Siguan? This is the pivotal issue to be resolved in this
petition for review on certiorari under Rule 45 of the Revised
Rules of Court.
The relevant facts, as borne out of the records, are as
follows:
On 25 and 26 August 1990, LIM issued two Metrobank
checks in the sums of P300,000 and P241,668, respectively,
payable to “cash.” Upon presentment by petitioner with the
drawee bank, the checks were dishonored for the reason
“account closed.” Demands to make good the checks proved
futile. As a consequence, a criminal case for violation of Batas
Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28,
were filed by petitioner against LIM with Branch 23 of the
Regional Trial Court (RTC) of Cebu City. In its decision dated1
29 December 1992, the court a quo convicted LIM as charged.
The case is pending before this Court for review and docketed
as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of
estafa by the RTC of Quezon City in Criminal Case No. Q-89-
2216 filed by a certain Victoria Suarez. This decision was
2 the RTC of Cebu City to rescind the questioned Deed of
affirmed by the Court of Appeals. On appeal, however, this
Court, in a decision promulgated on 7 April 1997, acquitted
3 certificates of title issued for the lots covered by the questioned
LIM but held her civilly liable in the amount of P169,000, as
actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation conveying4
the following parcels of land and purportedly executed by LIM
on 10 August 1989 in favor of her children, Linde, Ingrid and
Neil, was registered with the Office of the Register of Deeds of
Cebu City:
1. (1)a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 563 sq. m. and covered by TCT No.
93433;
_______________
1 Original Record (OR), 42.
2 Id., 135.
3 G.R. No. 102784, 271 SCRA 12 (1997).
4 OR, 10-12.
731
VOL. 318, NOVEMBER 19, 731
1999
Siguan vs. Lim
1. (2)a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 600 sq. m. and covered by TCT No.
93434;
2. (3)a parcel of land situated at Cebu City containing an area
of 368 sq. m. and covered by TCT No. 87019; and
3. (4)a parcel of land situated at Cebu City, Cebu containing an
area of 511 sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the
names of the donees. 5
On 23 June 1993, petitioner filed an accion
pauliana against LIM and her children before Branch 18 of
Donation and to declare as null and void the new transfer
Deed. The complaint was docketed as Civil Case No. CEB-
14181. Petitioner claimed therein that sometime in July 1991,
LIM, through a Deed of Donation, fraudulently transferred all
her real property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and confederated
with her children in antedating the questioned Deed of
Donation, to petitioner’s and other creditors’ prejudice; and
that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner.
She claimed that her convictions in Criminal Cases Nos.
22127-28 were erroneous, which was the reason why she
appealed said decision to the Court of Appeals. As regards the
questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she had
sufficient property. Finally, she alleged that the Deed of
Donation was registered only on 2 July 1991 because she was
seriously ill.
In its decision of 31 December 1994, the trial court ordered
6
the rescission of the questioned deed of donation; (2) declared
null and void the transfer certificates of title issued in the
_______________
5Id., 6-9.
6OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.
732
732 SUPREME COURT REPORTS
ANNOTATED
Siguan vs. Lim
names of private respondents Linde, Ingrid and Neil Lim; (3)
ordered the Register of Deeds of Cebu City to cancel said titles
and to reinstate the previous titles in the name of Rosa Lim;
and (4) directed the LIMs to pay the petitioner, jointly and
severally, the sum of P10,000 as moral damages; P10,000 as
attorney’s fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision promulgated
7 RESPONDENT ROSA [LIM].
on 20 February 1998, reversed the decision of the trial court
and dismissed petitioner’s accion pauliana. It held that two of
the requisites for filing an accion pauliana were absent,
namely, (1) there must be a credit existing prior to the
celebration of the contract; and (2) there must be a fraud, or at
least the intent to commit fraud, to the prejudice of the
creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation,
which was executed and acknowledged before a notary public,
appears on its face to have been executed on 10 August 1989.
Under Section 23 of Rule 132 of the Rules of Court, the
questioned Deed, being a public document, is evidence of the
fact which gave rise to its execution and of the date thereof.
No antedating of the Deed of Donation was made, there being
no convincing evidence on record to indicate that the notary
public and the parties did antedate it. Since LIM’s
indebtedness to petitioner was incurred in August 1990, or a
year after the execution of the Deed of Donation, the first
requirement for accion pauliana was not met.
Anent petitioner’s contention that assuming that the Deed
of Donation was not antedated it was nevertheless in fraud of
creditors because Victoria Suarez became LIM’s creditor on 8
October 1987, the Court of Appeals found the same untenable,
for the rule is basic that the fraud must prejudice the creditor
seeking the rescission.
Her motion for reconsideration having been denied,
petitioner came to this Court and submits the following issue:
_______________
7Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola, E., JJ.,
concurring.
733
VOL. 318, NOVEMBER 19, 733
1999
Siguan vs. Lim
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS
ENTERED INTO IN FRAUD OF [THE] CREDITORS OF
Petitioner argues that the finding of the Court of Appeals that
the Deed of Donation was not in fraud of creditors is contrary
to well-settled jurisprudence laid down by this Court as early
as 1912 in the case of Oria v. McMicking, which enumerated
8
the various circumstances indicating the existence of fraud in
a transaction. She reiterates her arguments below, and adds
that another fact found by the trial court and admitted by the
parties but untouched by the Court of Appeals is the existence
of a prior final judgment against LIM in Criminal Case No. Q-
89-2216 declaring Victoria Suarez as LIM’s judgment creditor
before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals
incorrectly applied or interpreted Section 23, Rule 132 of the
9
Rules of Court, in holding that “being a public document, the
said deed of donation is evidence of the fact which gave rise to
its execution and of the date of the latter.” Said provision
should be read with Section 30 of the same Rule which
10
provides that notarial documents are prima facie evidence of
their execution, not “of the facts which gave rise to their
execution and of the date of the latter.”
_______________
8 21 Phil. 243 (1912).
9 Sec. 23. Public documents as evidence.—Documents consisting of entries
in public records made in the performance of a duty by a public officer
are prima facie evidence of the facts therein stated. All other public documents
are evidence, even against a third person, of the fact which gave rise to their
execution and of the date of the latter.
 10 Sec. 30. Proof of notarial documents.—Every instrument duly
acknowledged or proved and certified as provided by law may be presented in
evidence without further proof, the certificate of acknowledgment being prima
facie evidence of the execution of the instrument or document involved.
734
734 SUPREME COURT REPORTS
ANNOTATED
Siguan vs. Lim
Finally, petitioner avers that the Court of Appeals overlooked
Article 759 of the New Civil Code, which provides: “The
donation is always presumed to be in fraud of creditors when
at the time of the execution thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.” In
this case, LIM made no reservation of sufficient property to
pay her creditors prior to the execution of the Deed of
Donation.
On the other hand, respondents argue that (a) having
agreed on the law and requisites of accion pauliana, petitioner
cannot take shelter under a different law; (b) petitioner cannot
invoke the credit of Victoria Suarez, who is not a party to this
case, to support her accion pauliana; (c) the Court of Appeals
correctly applied or interpreted Section 23 of Rule 132 of the
Rules of Court; (d) petitioner failed to present convincing
evidence that the Deed of Donation was antedated and
executed in fraud of petitioner; and (e) the Court of Appeals
correctly struck down the awards of damages, attorney’s fees
and expenses of litigation because there is no factual basis
therefor in the body of the trial court’s decision.
The primordial issue for resolution is whether the
questioned Deed of Donation was made in fraud of petitioner
and, therefore, rescissible. A corollary issue is whether the
awards of damages, attorney’s fees and expenses of litigation
are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in
cases brought before it from the Court of Appeals via Rule 45
of the Rules of Court is limited to reviewing errors of law.
Findings of fact of the latter court are conclusive, except in a
number of instances. In the case at bar, one of the recognized
11
_______________
11 In Sta. Maria v. Court of Appeals, 285 SCRA 351 (1998), the Court
enumerated some of the instances when the factual findings of the Court of
Appeals are not deemed conclusive, to wit: (1) when the findings are grounded
entirely on speculation, surmises, or conjectures; (2) when the inference made
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when
735
VOL. 318, NOVEMBER 19, 735
1999
Siguan vs. Lim
exceptions warranting a review by this Court of the factual
findings of the Court of Appeals exists, to wit, the factual
findings and conclusions of the lower court and Court of
Appeals are conflicting, especially on the issue of whether the
Deed of Donation in question was in fraud of creditors.
Article 1381 of the Civil Code enumerates the contracts
which are rescissible, and among them are “those contracts
undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them.”
The action to rescind contracts in fraud of creditors is
known as accion pauliana. For this action to prosper, the
following requisites must be present: (1) the plaintiff asking
for rescission has a credit prior to the alienation, although 12
demandable later; (2) the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; (3)
the creditor has no other legal remedy to satisfy his claim; (4) 13
the act being impugned is fraudulent; (5) the third person
14
who received the property conveyed, if it is by onerous title,
has been an accomplice in the fraud. 15
_______________
the judgment is based on a misapprehension of facts; (5) when the findings
of fact are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner’s main and reply briefs are
not disputed by the respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on
record.
12 Panlilio v. Victoria, 35 Phil. 706 (1916); Solis v. Chua Pua Hermanos, 50
Phil. 636 (1927).
13 Article 1383, Civil Code.
14 4 TOLENTINO, ARTURO M., CIVIL CODE OF THE PHILIPPINES 576
(1991), (hereafter 4 TOLENTINO); citing 8 Manresa 756, 2 Castan 543-555,
and 3 Camus 207.
15 4 TOLENTINO 576, citing 2 Castan 543-555 and 3 Camus 107.
736
736 SUPREME COURT REPORTS
ANNOTATED
Siguan vs. Lim
The general rule is that rescission requires the existence of
creditors at the time of the alleged fraudulent alienation, and
this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior
16
existing debt, there can neither be injury nor fraud. While it is
necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the
date of the judgment enforcing it is immaterial. Even if the
judgment be subsequent to the alienation, it is merely
declaratory, with retroactive effect to the date when the credit
was constituted. 17
In the instant case, the alleged debt of LIM in favor of
petitioner was incurred in August 1990, while the deed of
donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner
that the questioned deed was antedated to make it appear that
it was made prior to petitioner’s credit. Notably, that deed is a
public document, it having been acknowledged before a notary
public. As such, it is evidence of the fact which gave rise to its
18
execution and of its date, pursuant to Section 23, Rule 132 of
the Rules of Court.
Petitioner’s contention that the public documents referred
to in said Section 23 are only those entries in public records
made in the performance of a duty by a public officer does not
hold water. Section 23 reads:
SEC. 23. Public documents as evidence.—Documents consisting of
entries in public records made in the performance of a duty by a
public officer are prima facie evidence of the facts therein stated. All
other public documents are evidence, even against a third person, of
the fact which gave rise to their execution and of the date of the latter.
(Italics supplied).
_______________
16 Solis v. Chua Pua Hernanes, supra note 12, at 639.
17 4 TOLENTINO 576-577, citing Sentencia (Cuba) of 7 May 1910 and 1
Gasperi 484-485.
18 Section 19(b), Rule 132, Rules of Court.
737
VOL. 318, NOVEMBER 19, 737
1999
Siguan vs. Lim
The phrase “all other public documents” in the second sentence of
Section 23 means those public documents other thanthe entries in
public records made in the performance of aduty by a public officer.
And these include notarial documents,like the subject deed of
donation. Section 19, Rule 132 of theRules of Court provides:
SEC. 19. Classes of documents.—For the purpose of their
presentation in evidence, documents are either public or private.
Public documents are:
1. (a). . .
2. (b)Documents acknowledged before a notary public except
last wills and testaments . . . .
It bears repeating that notarial documents, except last wills
and testaments, are public documents and are evidence of the
facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was
registered only on 2 July 1991 is not enough to overcome the
presumption as to the truthfulness of the statement of the date
in the questioned deed, which is 10 August 1989. Petitioner’s
claim against LIM was constituted only in August 1990, or a
year after the questioned alienation. Thus, the first two
requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor
of LIM prior to the celebration of the contract of donation, still
her action for rescission would not fare well because the third
requisite was not met. Under Article 1381 of the Civil Code,
contracts entered into in fraud of creditors may be rescinded
only when the creditors cannot in any manner collect the
claims due them. Also, Article 1383 of the same Code provides
that the action for rescission is but a subsidiary remedy which
cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
The term “subsidiary remedy” has been defined as “the
exhaustion of all remedies by the prejudiced creditor to collect
738
738 SUPREME COURT REPORTS
ANNOTATED
Siguan vs. Lim
claims due him before rescission is resorted to.” It is, 19
therefore, essential that the party asking for rescission prove
that he has exhausted all other legal means to obtain
satisfaction of his claim. Petitioner neither alleged nor proved
20
that she did so. On this score, her action for the rescission of
the questioned deed is not maintainable even if the fraud
charged actually did exist. 21
The fourth requisite for an accion pauliana to prosper is not
present either.
Article 1387, first paragraph, of the Civil Code provides:
“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.
Likewise, Article 759 of the same Code, second paragraph,
states that the donation is always presumed to be in fraud of
creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be
established that the donor did not leave adequate properties
which creditors might have recourse for the collection of their
credits existing before the execution of the donation.
As earlier discussed, petitioner’s alleged credit existed only
a year after the deed of donation was executed. She cannot,
therefore, be said to have been prejudiced or defrauded by such
alienation. Besides, the evidence disclose that as of 10 August
1989, when the deed of donation was executed, LIM had the
following properties:
1. (1)A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in
Sto. Niño
_______________
19 MORENO, FEDERICO B., PHILIPPINE LAW DICTIONARY 915 (1988).
20 Article 1177, Civil Code.
21 See Goquiolay v. Sycip, 9 SCRA 663, 677 (1963); Solis v. Chua Pua
Hermanos, supra note 12, at 639-640.
739
VOL. 318, NOVEMBER 19, 739
1999
Siguan vs. Lim
Village, Mandaue City, Cebu, registered in the name of
Rosa Lim and covered by TCT No. 19706; 22
1. (2)A parcel of land located in Benros Subdivision, Lawa-an,
Talisay, Cebu;23
2. (3)A parcel of land containing an area of 2.152 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No.
13572.24
3. (4)A parcel of land containing an area of 3.6 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
 Southern Leyte, and covered by Tax Declaration No.
13571. 25
During her cross-examination, LIM declared that the house
and lot mentioned in No. 1 was bought by her in the amount
of about P800,000 to P900,000. Thus: 26
ATTY. FLORIDO:
Q These properties at the Sto. Niño
Village, how much did you acquire
this property?
A Including the residential house
P800,000.00 to P900,000.00.
Q How about the lot which includes
the house. How much was the price
in the Deed of Sale of the house
and lot at Sto. Niño Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to
P900,000.00.
Petitioner did not adduce any evidence that the price of said
property was lower. Anent the property in No. 2, LIM testified
that she sold it in 1990. As to the properties in Nos. 3 and 4,
27
the total market value stated in the tax declarations dated 23
November 1993 was P56,871.60. Aside from these tax declara-
_______________
22 Exhibit “M”; Exhibit “2”; OR, 114.
tions, petitioner did not present evidence that would indicate
the actual market value of said properties. It was not,
therefore, sufficiently established that the properties left
behind by LIM were not sufficient to cover her debts existing
before the donation was made. Hence, the presumption of
fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387 of the Civil
Code. Under the third paragraph of Article 1387, the design to
defraud may be proved in any other manner recognized by the
law of evidence. Thus in the consideration of whether certain
transfers are fraudulent, the Court has laid down specific
rules by which the character of the transaction may be
determined. The following have been denominated by the
Court as badges of fraud:
1. (1)The fact that the consideration of the conveyance is
fictitious or is inadequate;
2. (2)A transfer made by a debtor after suit has begun and while
it is pending against him;
3. (3)A sale upon credit by an insolvent debtor;
4. (4)Evidence of large indebtedness or complete insolvency;
5. (5)The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed
financially;
6. (6)The fact that the transfer is made between father and son,
when there are present other of the above circumstances;
and
7. (7)The failure of the vendee to take exclusive possession of
all the property.28

23 TSN, 12 November 1993, 4.

24 Exhibit “N”; OR, 146.

25 Exhibit “O”; Id., 147. The above enumeration, however, is not an exclusive list. The
26 TSN, 12 November 1993, 7. circumstances evidencing fraud are as varied as the men who
27 Id., 6.
perpetrate the fraud in each case. This Court has therefore
740
declined to define it, reserving the liberty to deal with it under
740 SUPREME COURT REPORTS
whatever form it may present itself. 29

ANNOTATED
Siguan vs. Lim _______________
 Oria v. McMicking, supra note 8.
28
Rivera v. Litam & Co., 4 SCRA 1072 (1962).
29
741
VOL. 318, NOVEMBER 19, 741
1999
Siguan vs. Lim
Petitioner failed to discharge the burden of proving any of the
circumstances enumerated above or any other circumstance
from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are not
present in this case, petitioner’s action must fail.
In her further attempt to support her action for rescission,
petitioner brings to our attention the 31 July 1990 Decision of30
the RTC of Quezon City, Branch 92, in Criminal Case No. Q-
89-2216. LIM was therein held guilty of estafa and was
ordered to pay complainant Victoria Suarez the sum of
P169,000 for the obligation LIM incurred on 8 October 1987.
This decision was affirmed by the Court of Appeals. Upon
appeal, however, this Court acquitted LIM of estafa but held
her civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case,
Victoria Suarez, albeit a creditor prior to the questioned
alienation, is not a party to this accion pauliana. Article 1384
of the Civil Code provides that rescission shall only be to the
extent necessary to cover the damages caused. Under this
Article, only the creditor who brought the action for rescission
can benefit from the rescission; those who are strangers to the
action cannot benefit from its effects. And the revocation is
31
only to the extent of the plaintiff creditor’s unsatisfied credit;
as to the excess, the alienation is maintained. Thus, 32
petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
Now on the propriety of the trial court’s awards of moral
damages, attorney’s fees and expenses of litigation in favor of
the petitioner. We have pored over the records and found no
factual or legal basis therefor. The trial court made these
awards in the dispositive portion of its decision without
stating, however, any justification for the same in the ratio
deci-
_______________
30 Exhibit “K”; OR, 135.
31 4 PARAS, EDGARDO L., CIVIL CODE OF THE PHILIPPINES, 70
(1994); 4 TOLENTINO 586, citing 7 Planiol & Ripert 274-275.
32 4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.
742
742 SUPREME COURT REPORTS
ANNOTATED
Almario vs. Resus
dendi. Hence, the Court of Appeals correctly deleted these
awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the
challenged decision of the Court of Appeals in CA-G.R. CV. No.
50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago,
JJ., concur.
Petition dismissed; Challenged decision affirmed in toto.
Note.—There are innumerable situations where fraud is
manifested—one enumeration in a 1912 decision cannot
possibly cover all indications of fraud from that time up to the
present and into the future. (Limketkai Sons Milling, Inc. vs.
Court of Appeals, 250 SCRA 523 [1995])
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