FIRST DIVISION
[G.R. No. 129644. March 7, 2000]
CHINA BANKING
CORPORATION, petitioner, vs. HON. COURT OF APPEALS, PAULINO ROXAS
CHUA and KIANG MING CHU CHUA, respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
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."
The facts of the case are not in dispute:
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.
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 ˝ 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:
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.
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 (1/2) 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.
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:
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:
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.
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:
Art. 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:
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.
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 vs. 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."
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 vs. Mcmicking,[8] the Supreme Court considered the following instances
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 embarrassed financially.
6. The fact
that the transfer is made between father and son, when there are present other
of the above circumstances
7. The failure of
the vendee to take exclusive possession of all the property. (Underscoring
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:
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.
x x x x x x x x x
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$1Million by his maternal
grandmother which he used to invest in a buy-and-sell business of stuffed toys.
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 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.
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., (Chairman), Puno, and Kapunan, JJ., concur.
Pardo, J., on official business abroad.