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China Bank vs CA (1381).

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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 (½ 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.
 On September 8, 1986, an alias notice of levy on execution on the one-half (1/2)
undivided portion of TCT 410603 belonging to Alfonso Chua was issued in connection
with Civil Case 82-14134. 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 Alfonso’s 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 ½ 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was done to defraud his creditors and may be rescinded under Article 1387 of the Civil Code.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) �
The court held that there is a presumption that the 1988 sale of his property, in this case the right
of redemption, is fraudulent under Article 1387 of the Civil Code. The fact that private respondent
Paulino Roxas Chua redeemed the property and caused its annotation on the TCT more than two
years ahead of petitioner China Bank is of no moment. As stated in the case of Cabaliw vs. Sadorra,
7http://www.lawphil.net/judjuris/juri2000/mar2000/gr_129644_2000.html" \l "fnt7 "the parties

here do not stand in equipoise, for the petitioners have in their favor, by a specific provision of
law, the presumption of fraudulent transaction which is not overcome by the mere fact that the
deeds of sale were in the nature of public instruments."
Despite Alfonso Roxas Chua's knowledge that it is the only property he had which his other
creditors could levy, he still assigned his right to redeem his one-half share of the conjugal
property in question from Metrobank in favor of his son, Paulino. Alfonso's intent to defraud his
other creditors, specifically, China Bank, becomes even more apparent when we take into
consideration the fact that immediately after the Court of Appeals rendered its Resolution dated
September 29, 1988, dismissing the appeal of Pacific Multi-Agro and Alfonso Roxas Chua in CA-
G.R. No. CV-14681 entitled, "China Banking Corporation, Plaintiff-Appellee versus Pacific Multi
Agro-Industrial Corporation, et al., Defendants-Appellants,
10http://www.lawphil.net/judjuris/juri2000/mar2000/gr_129644_2000.html" \l "fnt10 "he

assigned his right to redeem one-half of the conjugal property to his son on November 21, 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.

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