Asia Banking Corporation v. Corcuera
REITERATIONFacts
The Antecedents: Plaintiff Asia Banking Corporation (ABC) alleged that Lichauco Corporation, conspiring with defendant Maria Luisa Corcuera (widow of Galo Lichauco and administratrix of his estate), executed a deed of conveyance on January 16, 1922, to defraud ABC in the collection of an indebtedness. The deed, purportedly for P24,000 with interest from January 20, 1920, at 12% per annum, conveyed 88 hectares of property. ABC claimed the Lichauco Corporation was not indebted to the estate, the conveyance was fictitious, the property was worth at least P100,000 with a P7,000 annual income, and the P24,000 consideration was grossly inadequate. The deed was registered, and Certificate of Title No. 455 was issued in favor of the Galo Lichauco Estate. ABC's subsequent sheriff's deed, arising from a judgment against Lichauco Corporation, was refused registration due to the prior recording of the deed to Corcuera. Procedural History: The trial court initially rendered judgment declaring the conveyance null and void and ordering the cancellation of Certificate of Title No. 455 in favor of ABC. However, upon motion for reconsideration, the court set aside its initial judgment and entered a new one absolving Corcuera and declaring her the sole owner of 23/25 parts of the property. ABC appealed this latter judgment. The Petition: ABC prayed that the deed to Corcuera be declared fraudulent and void, Certificate of Title No. 455 be cancelled, and the sheriff's deed to ABC be ordered registered.
Issue(s)
Whether the deed of conveyance from Lichauco Corporation to Maria Luisa Corcuera, as administratrix of the Galo Lichauco Estate, for a consideration of P24,000, was fraudulent and void as against the creditors of Lichauco Corporation. Whether the consideration of P24,000 for the 88 hectares of land was grossly inadequate, rendering the conveyance a fraud upon creditors.
Ruling
The Supreme Court affirmed the judgment of the lower court, absolving Maria Luisa Corcuera and declaring her the sole and exclusive owner of 23/25 parts of the property. The Court held that the conveyance was not fraudulent and that the consideration was not legally inadequate.
Ratio Decidendi
On the issue of fraudulent conveyance and adequacy of consideration: The Court found that the underlying basic facts were almost identical to those in G.R. No. 28495, but with a crucial distinction. The deed in question was executed on January 16, 1922, when the Lichauco Corporation was insolvent. The deed recited a loan of P24,000 from Galo Lichauco to the corporation on January 9, 1920, with interest, secured by a mortgage, which was later released to allow the property to be mortgaged to China Banking Corporation. The conveyance was made to secure this pre-existing debt. The Court cited Ruling Case Law, Vol. 12, p. 479, stating that courts will not weigh the value of goods and price received in "very nice scales," but there should be a reasonable and fair proportion between the two. Inadequacy of price must be such as to "startle a correct mind." Considering the 88 hectares conveyed for P24,000, and in the absence of other evidence as to the land's actual value beyond its book valuation of P50,000, the Court could not, as a matter of law, declare the consideration inadequate or the conveyance a fraud upon creditors. The Court also noted that the subsequent conveyance of other properties by Faustino Lichauco to the estate for P22,500 did not impair the validity of the deed in question. On the applicability of Article 1292 of the Civil Code: The Court distinguished this case from others where conveyances to secure pre-existing debts were deemed fraudulent. In this instance, the record was conclusive that the debt of P24,000 was due and owing and enforcible at the time the deed was executed. Therefore, the conveyance did not come under the terms and provisions of Article 1292 of the Civil Code, which pertains to acts that cannot be presumed to be executed in fraud of creditors unless the contrary is proven. The Court acknowledged that the case was not free from doubt but found that the inadequacy of consideration was not as clear or convincing as in G.R. No. 28495, nor did the facts bring it within Article 1292.
Main Doctrine
A conveyance made to secure a pre-existing debt, which debt is due and owing and enforcible at the time of the execution of the deed, does not fall under the provisions of Article 1292 of the Civil Code regarding fraudulent conveyances, provided the consideration is not grossly inadequate and the conveyance is not a fraud upon creditors.