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CHINA BANKING CORPORATION vs.

CA Hence, the law presumes that there is fraud of creditors


G.R. No. 129644. March 7, 2000 when:
a) There is alienation of property by gratuitous title by the
Nature: Motion for Reconsideration of the Decision dated debtor who has not reserved sufficient property to pay his
March 7, 2000 debts contracted before such alienation; or
b) There is alienation of property by onerous title made by a
Facts: debtor against whom some judgment has been rendered in
any instance or some writ of attachment has been issued.
 Alfonso Roxas Chua and wife Kiang were the The decision or attachment need not refer to the property
owners of a residential land. alienated and need not have been obtained by the party
 A notice of levy affecting the property was issued seeking rescission.
because of, “Metropolitan Bank and Trust
Company vs Pacific Multi Commercial Corporation It should be noted that the presumption of fraud or intention
(PMAIC) and Alfonso Roxas Chua.” to defraud creditors is not just limited to the two instances
Subsequently, Kiang filed a complaint questioning set forth in the first and second paragraphs of Article 1387
the levy since it should not be enforced because it of the Civil Code.
was a conjugal property. The parties then entered Under the third paragraph of the same article, the design to
into a compromise agreement that the levy was defraud creditors may be proved in any other manner
valid and enforceable only to the conjugal share recognized by the law of evidence. In the early case of Oria
(½ of the land) of Alfonso. vs. Mcmicking, the Supreme Court considered the following
 Meanwhile, petitioner China Bank filed with the instances as badges of fraud:
RTC an action for collection of sum of money 1. The fact that the consideration of the conveyance
against PMAIC and Alfonso. The complaint was is fictitious or is inadequate. 

because of 3 promissory notes. RTC ruled in favor 2. A transfer made by a debtor after suit has begun
of China Bank. and while it is pending against him. 

 On September 8, 1986, an alias notice of levy on 3. A sale upon credit by an insolvent debtor. 

execution on the one-half (1/2) undivided portion 4. Evidence of large indebtedness or complete
of TCT 410603 belonging to Alfonso Chua was insolvency. 

issued in connection with Civil Case 82-14134. 5. The transfer of all or nearly all of his property by a
The notice was inscribed and annotated and a debtor, especially when he is insolvent or greatly
certificate of sale was executed in favor of embarrassed financially. 

Metropolitan Bank and Trust Company. 6. The fact that the transfer is made between father
 Alfonso executed an “Assignment of Rights to and son, when there are present other of the
Redeem,” to his son Paulino. Paulino then
above circumstances. 

redeemed said one-half share on the very same
7. The failure of the vendee to take exclusive
day. 

possession of all the property. (Italics provided) 

 Another notice of levy on execution was issued by
the Deputy Sheriff against
the right and interest of Alfonso’s share of the land. The court held that there is a presumption that the 1988
Thereafter, a certificate of sale on execution was sale of his property, in this case the right of redemption, is
issued by the Sheriff in favor of China Bank and fraudulent under Article 1387 of the Civil Code. The fact that
was also inscribed on the title. private respondent Paulino Roxas Chua redeemed the
 Paulino and Kiang instituted before the RTC property and caused its annotation on the TCT more than
against China Bank, averring that Paulino has a two years ahead of petitioner China Bank is of no moment.
prior and better right over the rights, title, interest As stated in the case of Cabaliw vs. Sadorra, 7 "the parties
and participation of China Bank; that Alfonso sold here do not stand in equipoise, for the petitioners have in
his right to redeem ½ of the aforesaid conjugal their favor, by a specific provision of law, the presumption of
property in his favor before China Bank acquired fraudulent transaction which is not overcome by the mere
its right from the notice of levy. fact that the deeds of sale were in the nature of public
instruments."
 RTC decided in favor of Private Respondent. CA
affirmed the decision of the RTC.
Despite Alfonso Roxas Chua's knowledge that it is the only
Issue: Whether the assignment of the right of redemption property he had which his other creditors could levy, he still
made by Alfonso in favor of Paulino was done to defraud his assigned his right to redeem his one-half share of the
creditors and may be rescinded under Article 1387 of the conjugal property in question from Metrobank in favor of his
Civil Code. son, Paulino. Alfonso's intent to defraud his other creditors,
specifically, China Bank, becomes even more apparent
HELD: YES when we take into consideration the fact that immediately
after the Court of Appeals rendered its Resolution dated
Rationale: Under Article 1381(3) of the Civil Code, contracts September 29, 1988, dismissing the appeal of Pacific Multi-
which are undertaken in fraud of creditors when the latter Agro and Alfonso Roxas Chua in CA-G.R. No. CV-14681
cannot in any manner collect the claims due them, are entitled, "China Banking Corporation, Plaintiff-Appellee
rescissible. The existence of fraud or intent to defraud versus Pacific Multi Agro-Industrial Corporation, et al.,
creditors may either be presumed in accordance with Article Defendants-Appellants, 10 "he assigned his right to redeem
1387 of the Civil Code or duly proved in accordance with the one-half of the conjugal property to his son on November 21,
ordinary rules of evidence. 1988.
It bears emphasis that it is not sufficient that the conveyance
is founded on a valuable consideration (Paulino had indeed
paid the redemption price of P1,463,375.39 to Metrobank
and the sum of P100,000.00 to his father). 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. . . . 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.

Decision: RECONSIDERED AND SET ASIDE.