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CHINA BANKING CORPORATION vs. HON.

COURT OF APPEALS,
PAULINO ROXAS CHUA and KI- ANG MING CHU CHUA
G.R. No. 129644. March 7, 2000.
Facts:

Alfonso Roxas Chua and wife Kiang were the owners of a residential
land.
A notice of levy affecting the property was issued because of,
Metropolitan Bank and Trust Company vs Pacific Multi Commercial
Corporation (PMAIC) and Alfonso Roxas Chua. Subsequently, Kiang
filed a complaint questioning the levy since it should not be enforced
because it was a conjugal property. The parties then entered into a
compromise agreement that the levy was valid and enforceable only to
the conjugal share ( of the land) of Alfonso.
Meanwhile, petitioner China Bank filed with the RTC an action for
collection of sum of money against PMAIC and Alfonso. The complaint
was because of 3 promissory notes. RTC ruled in favor of China Bank.
An alias notice of levy on execution on Alfonsos share of the land was
issued regarding the first case. The notice was inscribed and annotated
and a certificate of sale was executed in favor of Metropolitan Bank
and Trust Company.
Alfonso executed an Assignment of Rights to Redeem, to his son
Paulino. Paulino then redeemed said one-half share on the very same
day.
Another notice of levy on execution was issued by the Deputy Sheriff
against
the right and interest of Alfonsos share of the land. Thereafter, a
certificate of sale on execution was issued by the Sheriff in favor of
China Bank and was also inscribed on the title.
Paulino and Kiang instituted before the RTC against China Bank,
averring that Paulino has a prior and better right over the rights, title,
interest and participation of China Bank; that Alfonso sold his right to
redeem of the aforesaid conjugal property in his favor before China
Bank acquired its right from the notice of levy.
RTC decided in favor of Private Respondent. CA affirmed the decision of
the RTC.

Issue: Whether the assignment of the right of redemption made by Alfonso


in favor of Paulino was done to defraud his creditors and may be rescinded
under Article 1387 of the Civil Code.
Ratio:
YES. 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.
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.
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, 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. (Italics provided)