Philippine Bank of Communications v. Court of Appeals
REITERATIONFacts
The Antecedents: Joseph L.G. Chua (Chua) was a surety for Fortune Motors (Phils.), Inc. and Forte Merchant Finance, Inc. in several Surety Agreements and trust receipts/loans with Philippine Bank of Communications (PBCOM). Chua executed a Deed of Exchange on October 24, 1983, transferring his real property in Dasmariñas, Makati, covered by TCT No. S-52808, to Jaleco Development, Inc. (JALECO) in exchange for 12,000 shares of JALECO. Subsequently, TCT No. 126573 was issued in JALECO's name. Chua then sold 6,000 shares of JALECO to Chua Tiong King and another 6,000 shares to Guillermo Jose, Jr. Chua's wife also sold 6,000 shares to Chua Tiong King. Due to the failure of Fortune Motors and Forte Merchant Finance to meet their obligations, PBCOM filed collection cases against them and Chua. PBCOM obtained a writ of preliminary attachment on Fortune Motors' properties, which were found to be heavily encumbered. PBCOM then discovered Chua's property had been transferred to JALECO and filed a case for annulment of the Deed of Exchange, alleging it was executed in fraud of PBCOM as a creditor. Procedural History: The Regional Trial Court (RTC) of Makati dismissed PBCOM's complaint. The Court of Appeals (CA) affirmed the dismissal, holding that the Deed of Exchange was not offered as evidence, the annulment case was premature due to pending collection cases, and PBCOM's interests were protected by a writ of preliminary attachment. The Petition: PBCOM seeks the reversal of the CA decision, arguing that the Deed of Exchange should have been admitted as evidence due to judicial admissions by the respondents and that the annulment case was not premature.
Issue(s)
Whether the Court of Appeals committed reversible error in not admitting the Deed of Exchange as evidence. Whether the annulment case filed by PBCOM was premature despite the pendency of collection cases against the principal debtors and Chua as surety. Whether the Deed of Exchange was executed in fraud of creditors, warranting the annulment thereof and the piercing of JALECO's corporate veil.
Ruling
The petition is granted. The questioned decision of the Court of Appeals is reversed and set aside. The Deed of Exchange executed by and between Joseph L. G. Chua and JALECO Development, Inc., and the title issued in the name of JALECO on the basis thereof are declared NULL and VOID.
Ratio Decidendi
On the admissibility of the Deed of Exchange: The Court of Appeals committed reversible error in not admitting the Deed of Exchange as evidence. Respondent Chua, in his Answer, admitted the existence of the Deed of Exchange and stated it was done in good faith and in accordance with law. This admission falls squarely within the scope of judicial admissions under Section 4, Rule 129 of the Rules of Court, which do not require further proof. Furthermore, documents attached to a complaint are considered part thereof and may be considered as evidence even if not formally offered, especially when their authenticity is not denied under oath. Respondent JALECO's denial of knowledge or information sufficient to form a belief as to the truth of the allegations concerning the deed of exchange was an ineffective denial, as the fact of execution was plainly within its knowledge. The ruling in Capitol Motors Corporation vs. Yabut was applied, stating that such a denial is palpably untrue when the fact is plainly within the defendant's knowledge. Therefore, the Deed of Exchange should have been admitted as evidence. On the prematurity of the annulment case: The appellate court's ruling that the case for annulment was premature due to the pendency of collection cases was not well-taken. The principal debtors, Fortune Motors (Phils.), Inc. and Forte Merchant Finance, Inc., failed to meet their obligations, and PBCOM's attempts to attach their properties proved insufficient due to prior encumbrances and lack of assets. It was established that the property subject to the Deed of Exchange was Chua's only property. Under Article 2047 of the Civil Code, Chua, as surety, is solidarily liable with the principal debtors. Since the debts became due and demandable, and Chua's only property was transferred after the debts became due, PBCOM has the right to file an action for annulment to prevent the judgments in the collection cases from becoming illusory. The principle of accion pauliana requires that the credit must exist at the time of the fraudulent alienation, even if not yet due, and that the credit must be due at the time the accion pauliana is brought. The date of the judgment enforcing the credit is immaterial, as it is merely declaratory with retroactive effect to the date the credit was constituted. On the fraud of creditors and piercing the corporate veil: The evidence clearly showed that the Deed of Exchange was executed in fraud of creditors. Chua and his immediate family controlled JALECO, which was organized shortly before the transaction. The Deed of Exchange involved Chua's only property at a time when his financial obligations were due and demandable. Despite the transfer, Chua continued to reside in the property, indicating the transaction was not bona fide. These circumstances demonstrated that the Deed of Exchange was a sham or simulated transaction intended to defraud PBCOM. The separate personality of JALECO was disregarded, and the corporate veil was pierced, treating JALECO as an alter ego of Chua. The principle that a corporation has a separate personality is subject to exceptions, such as when the corporation is used as a cloak for fraud or illegality, or to work an injustice, or to protect creditors. In this case, the evidence supported piercing the corporate veil to achieve equity and protect the creditor.
Main Doctrine
A deed of exchange transferring a debtor's sole property to a corporation, where the debtor and his family control the corporation and the debtor continues to occupy the property, can be annulled for being in fraud of creditors, allowing the piercing of the corporate veil as the transaction is deemed a sham and the corporation an alter ego of the debtor.