G.R. No. 129644, 7 March 2000

FACTS:

In connection with a civil case filed by Metropolitan Bank against Alfonso Roxas Chua, a notice of levy affecting the residential land of Alfonso and his wife was issued. 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 Metro Bank. 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, another levy on execution in favor of China Bank 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argued that the assignment of right of redemption made by Alfonso to Paulino was done in fraud of creditors and may be rescinded under Article 1387, NCC.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:

Was the assignment by Alfonso to Paulino of the right of redemption done to defraud his creditors and may be rescinded under Art. 1387, NCC?

RULING:

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. Hence, the law presumes that there is fraud of creditors 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. The Court of Appeals maintained that although the transfer was made between father and son, the conveyance was not fraudulent since Paulino has indeed paid the redemption fee of P1,463,375.39 to Metrobank and the sum of P100,000 to his father. 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 creditor to the debtor or 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 question as to whether or not the conveyance is fraudulent is: does it prejudice the rights of the creditors? The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Art. 1387, NCC. 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, 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 the time when the father was insolvent and had no other property to pay his creditors. Hence, it is of no consequence whether or not Paulino had given valuable consideration for the conveyance.

 * Case digest by Aisha Mie Faith M. Fernandez, LLB-1, Andres Bonifacio Law School, SY 2017-2018