China Banking Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Alfonso Roxas Chua and his wife Kiang Ming Chu Chua owned a residential land covered by TCT No. 410603. A notice of levy was issued against Alfonso's share in connection with a case filed by Metropolitan Bank and Trust Company (Metrobank). A compromise agreement stipulated that the levy was valid only to the extent of Alfonso's 1/2 undivided portion. Subsequently, China Banking Corporation (China Bank) filed a collection case against Pacific Multi Commercial Corporation and Alfonso Roxas Chua, obtaining a favorable judgment on November 7, 1985. In connection with the Metrobank case, an alias notice of levy on Alfonso's share was issued on September 8, 1986, followed by a certificate of sale in favor of Metrobank on December 22, 1987. On November 21, 1988, Alfonso assigned his right to redeem his share to his son, Paulino Roxas Chua, who redeemed the property on the same day. The assignment and redemption were annotated on March 14, 1989. In connection with its own judgment, China Bank issued another notice of levy on February 4, 1991, against Alfonso's right and interest in the property, followed by a certificate of sale dated April 13, 1992, in favor of China Bank, annotated on May 4, 1992. Procedural History: Paulino Roxas Chua and Kiang Ming Chu Chua filed a civil case against China Bank, asserting Paulino's prior and better right over the property due to the earlier annotation of his assignment of rights and redemption. The RTC ruled in favor of Paulino, making the preliminary injunction permanent and ordering the cancellation of China Bank's annotations. The RTC found the assignment to be for valuable consideration and executed two years before China Bank's levy. The CA affirmed the RTC's decision, holding that China Bank was remiss in its rights as a creditor for not exercising its right of redemption. The Petition: China Bank filed a petition for review on certiorari, assailing the CA's decision and raising the issue of whether the assignment of the right of redemption was made to defraud creditors and could be rescinded under Article 1387 of the Civil Code.
Issue(s)
Whether the assignment of the right of redemption made by Alfonso Roxas Chua in favor of his son, Paulino Roxas Chua, was executed in fraud of creditors and thus rescissible under Article 1387 of the Civil Code. Whether the Court of Appeals erred in holding that China Bank was remiss in its duties as a creditor for not availing of the right of redemption under Rule 39 of the Rules of Court.
Ruling
The petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The permanent injunction 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 China Bank are DECLARED VALID against the one-half portion of the subject property.
Ratio Decidendi
On the issue of whether the assignment of the right of redemption was executed in fraud of creditors and thus rescissible under Article 1387 of the Civil Code: The Supreme Court ruled in the affirmative. The Court reiterated that under Article 1387(b) of the Civil Code, alienations by onerous title made by a debtor against whom a judgment has been rendered are presumed fraudulent. In this case, a judgment had already been rendered in favor of China Bank against Alfonso Roxas Chua in 1985. The assignment of his right of redemption in 1988, which was the only property Alfonso had left to satisfy his debts, was therefore presumed fraudulent. The Court emphasized that the presumption of fraud under Article 1387 is not overcome by the mere fact that the conveyance was founded on a valuable consideration, especially when the transaction virtually leaves the debtor's other creditors with no other property to attach. The Court noted that Alfonso's intent to defraud creditors was further evidenced by the timing of the assignment, which occurred immediately after his appeal was dismissed by the Court of Appeals. The fact that Paulino redeemed the property and caused its annotation two years before China Bank's levy was deemed of no moment in overcoming the legal presumption of fraud. On the issue of whether the Court of Appeals erred in holding that China Bank was remiss in its duties as a creditor for not availing of the right of redemption under Rule 39 of the Rules of Court: The Supreme Court held that China Bank was not limited to the procedure outlined in Rule 39 of the Rules of Court to enforce its claim. The Court pointed out that Article 1387 of the Civil Code clearly provides that conveyances made by a debtor to defraud creditors may be rescinded, which was the remedy pursued by China Bank. Therefore, the CA's conclusion that China Bank was remiss in its duties was misplaced, as China Bank was entitled to pursue the rescission of the fraudulent conveyance.
Main Doctrine
An alienation of property by onerous title made by a debtor against whom a judgment has been rendered is presumed fraudulent under Article 1387 of the Civil Code, and this presumption is not overcome by the mere fact that the conveyance was founded on a valuable consideration, especially when the transfer virtually leaves the debtor's other creditors with no other property to attach.