Remedies for Breach

KHE HONG CHENG vs COURT OF APPEALS, HON. TEOFILO GUADIZ

GR No. 144169 March 28, 2001
KAPUNAN

Doctrine:

“The time for prescription for all kinds of actions, when there is no special provision which
ordains otherwise, shall be counted from the day they may be brought.”

FACTS:

Khe Hong Cheng/Felix Khe (Khe) is the owner of Butuan Shipping Lines.

Phil. Agricultural Trading Corp. (consignee) shipped onboard M/V Prince Eric, owned by
Khe, 3,400 bags of copra from Masbate to Dipolog City, Zamboanga del Norte. The shipment
was covered by a marine insurance policy issued by American Home Insurance Co.
(Philam). However, somewhere between Negros and Northeastern Mindanao, the ship sank
resulting in total loss of the shipment.

Because of the loss, Philam paid P354k (value of copra) to the consignee.

Philam, having been subrogated into the rights of the consignee, filed in the RTC of Makati
an action for recovery of money against Khe.

Pending the case, or on Dec. 20, 1989, Khe executed deeds of donation of parcels of land in
Butuan in favor of his children Sandra Joy and Ray Stevens and new TCTs were issued in
their names.

The trial court ordered Khe to pay 354k. After the decision became final, a writ of execution
was issued and despite earnest efforts of the sheriff he could not find any property under
Butuan Shipping Lines’ or Khe’s names.

On Jan. 17, 1997, the sheriff and Philam’s counsel went to Butuan and discovered that Khe
had no property and that he had conveyed the subject properties to his children.

Thus, on Feb. 25, 1997, Philam filed before RTC Makati a complaint for the rescission of the
deeds of donation and for the nullification of the TCTs in the name of Khe’s children. Philam
alleged that Khe executed the deeds in fraud of his creditors, including Philam.

In his motion to dismiss (MD), Khe contended that the registration of the deeds of donation
on Dec. 1989 constituted constructive notice, and since the complaint was filed only on Feb
1997 (more than 4 years later), the action was barred by prescription.
The RTC denied the MD, holding that the prescriptive period began to run only from Dec.
29, 1993, the date of the decision in Civil Case No. 13357.

The CA affirmed, holding that the four year period to institute the action for rescission
began to run only in Jan. 1997. Prior thereto, Philam had not yet exhausted all legal means
for the satisfaction of the decision in its favor, as prescribed under Article 1383 of the New
Civil Code.

ISSUE:

When did the 4 year prescriptive period as provided for in Article 1389 for Philam to file its
action for rescission of the deeds of donation commence to run?

The action for rescission shall comment in January 1997. Article 1389: “The action of
rescission must be commenced w/in 4 years.”

Since the provision is silent as to when the prescriptive period shall commence, Article
1150 is instructive: “The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day they may be
brought.”

It is the legal possibility of bringing the action which determines the starting point for the
computation of the prescriptive period for the action.

An action to rescind or an accion pauliana must be of last resort, availed of only after all
other legal remedies have been exhausted and have been proven futile. For an accion
pauliana to accrue, the following requisites must concur:

-that the plaintiff asking for rescission has a credit prior to, the alienation, although
demandable later;

-that the debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;

-that the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person;

-that the act being impugned is fraudulent;

-that the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.

Khe’s contention that the cause of action of Philam against them for the rescission of the
deeds of donation accrued as early as Dec.27, 1989, when he registered the deeds with the
Register of Deeds is unmeritorious. Even if Philam was aware, as of Dec. 27, 1989, that he
had executed the deeds of donation in favor of his children, the complaint against Butuan
Shipping Lines and/or Khe was still pending before the trial court. Thus, Philam had no
inkling, at the time, that the trial court’s judgment would be in its favor and further, that
such judgment would not be satisfied due to the deeds of donation executed by Khe during
the pendency of the case. Had Philam filed this complaint on Dec. 27, 1989, such complaint
would have been dismissed for being premature. Not only were all other legal remedies for
the enforcement of Philam's claims not yet exhausted at the time the deeds of donation
were executed and registered, Philam would also not have been able to prove then that Khe
had no more property other than those covered by the subject deeds to satisfy a favorable
judgment by the trial court.

Philam only learned about the unlawful conveyances made by Khe in Jan. 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of Khe. There they
found that he no longer had any properties in his name. Only then did Philam's action for
rescission of the deeds of donation accrue because then it could be said that Philam had
exhausted all legal means to satisfy the trial court's judgment in its favor.

Since Philam filed its complaint for accion pauliana against petitioners on February 25,
1997, barely a month from its discovery that Khe had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds clearly had not
yet prescribed.