FIRST DIVISION

[G.R. No. 129644. March 7, 2000.]

CHINA BANKING CORPORATION, petitioner, vs. HON. COURT

OF APPEALS, PAULINO ROXAS CHUA and KIANG MING CHU
CHUA, respondents.

Lim Vigilia Alcala Dumlao & Orencia for petitioner.

Nogales Law Office for private respondents.

SYNOPSIS

Alfonso Roxas Chua and his wife were the owners of a residential land
subject of this case. On February 2, 1984, a notice of levy affecting the
property was issued in connection with a civil case filed by Metropolitan Bank
and Trust Company against Pacific Multi Commercial Corporation and Alfonso
Roxas Chua. Because of this notice, respondent's wife filed a complaint against
the City Sheriff of Manila questioning the levy of the questioned property
alleging that the property was conjugal. Thereafter, the parties entered into
compromise agreement to the effect that the levy was enforceable only to the
extent of the 1/2 portion of the property. On June 19, 1985, petitioner China
Bank filed with the RTC of Manila an action for collection of sum of money
against Pacific Multi-Agro-Industrial Corporation and Alfonso Roxas Chua which
was anchored on three promissory notes amounting to P2,500,000.00 plus
stipulated interest. On November 7, 1985, the trial court rendered its decision
in favor of China Banking Corporation granting the amount prayed for. On
appeal, the appellate court dismissed the same for failure to file brief. On
November 21, 1988, Alfonso Roxas Chua executed a public instrument
assigning his rights to redeem the 1/2 undivided portion of the property to his
son, private respondent Paulino Chua. Paulino redeemed said 1/2 share on the
very same day. On the other hand, another notice of levy on execution was
issued on February 4, 1991 by the Deputy Sheriff of Manila against the rights
and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a certificate of
sale on execution dated April 13, 1992 was issued by the sheriff in favor of
China Bank and inscribed at the back of the title. On May 20, 1993, Paulino
Chua and Kiang Ming Chu Chua instituted a civil case before the RTC of Pasig
against China Bank averring that Paulino has a prior and better right over the
rights, title, interest, and participation of China Bank in TCT 410603. On July 15,
1994, the trial court rendered a decision in favor of private respondent and
against China Bank. The trial court ruled that the assignment was made for a
valuable consideration and was executed two years before petitioner China
Bank levied the conjugal share of Alfonso Chua on TCT 410603. On appeal, the
Court of Appeals affirmed the ruling of the trial court. Hence, this petition.
AcHCED

The Supreme Court found the petition impressed with merit. The Court
ruled that inasmuch as the judgment of the trial court in favor of China Bank
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 against Alfonso Chua was rendered as early as 1985, 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 Chua redeemed the property and caused its annotation on the TCT
more than two years ahead of petitioner China Bank is of no moment.
Moreover, 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. The petition was
granted and the decision of the Court of Appeals was reversed and set aside.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; FRAUD; PRESUMPTION

OF FRAUDULENT TRANSACTION IS NOT OVERCOME BY FACT THAT DEED OF
SALE IS IN THE NATURE OF A PUBLIC INSTRUMENT. — Such conclusion,
however, runs counter to the law applicable in the case at bar. Inasmuch as the
judgment of the trial court in favor of China Bank against Alfonso Roxas Chua
was rendered as early as 1985, 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, "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."
2. ID., ID.; ID.; BADGES OF FRAUD; INSTANCES. — This presumption is
strengthened by the fact that the conveyance has virtually left Alfonso's other
creditors with no other property to attach. 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
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 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.
3. ID.; ID.; ID.; OF VALUABLE CONSIDERATION DOES NOT
NECESSARILY NEGATE THE PRESUMPTION OF FRAUD. — It bears emphasis that
it is not sufficient that the conveyance is founded on a valuable consideration.
In the case of Oria vs. Mcmicking, 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.

DECISION

YNARES-SANTIAGO, J : p

Before us is a petition for review on certiorari assailing the decision

rendered by the Court of Appeals on June 26, 1997 which affirmed the decision
of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
63199 entitled "Paulino Roxas Chua and Kiang Ming Chu Chua, Plaintiffs versus
China Banking Corporation, the Sheriff of Manila and the Register of Deeds of
Pasig, Defendants."
The facts of the case are not in dispute:

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of
a residential land in San Juan, Metro Manila, covered by Transfer Certificate of
Title No. 410603. On February 2, 1984, a notice of levy affecting the property
was issued in connection with Civil Case No. 82-14134 entitled, "Metropolitan
Bank and Trust Company, Plaintiff versus Pacific Multi Commercial Corporation
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 and Alfonso Roxas Chua, Defendants," before the Regional Trial Court, Branch
XLVI of Manila. The notice of levy was inscribed and annotated at the back of
TCT 410603. Subsequently, Kiang Ming Chu Chua filed a complaint against the
City Sheriff of Manila and Metropolitan Bank and Trust Company, questioning
the levy of the abovementioned property. She alleged that the judgment of the
court in Civil Case No. 82-14134 against Alfonso Roxas Chua could not be
enforced against TCT 410603 inasmuch as the land subject thereof was the
conjugal property of the spouses. prcd

The parties thereafter entered into a compromise agreement to the effect

that the levy on TCT 410603 was valid and enforceable only to the extent of the
1/2 undivided portion of the property pertaining to the conjugal share of Alfonso
Roxas Chua.
Meanwhile, on June 19, 1985, petitioner China Bank filed with the Regional
Trial Court of Manila, Branch 29, an action for collection of sum of money
against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua which
was docketed as Civil Case No. 85-31257. The complaint was anchored on
three (3) promissory notes with an aggregate amount of P2,500,000.00 plus
stipulated interest.

On November 7, 1985, the trial court promulgated its decision in Civil

Case No. 85-31257 in favor of China Banking Corporation, the dispositive
portion of which reads as follows:
PREMISES CONSIDERED, judgment is hereby rendered in favor of
the plaintiff and against the defendants; ordering the latter to pay,
jointly and severally, the former, under the first cause of action, the
sum of P1,800,000.00, representing the unpaid of the promissory note,
plus 21% interest per annum and an additional amount equivalent to
1/10 of 1% per day of the total amount due, as penalty both from and
after October 4, 1983, until fully paid; under the second cause of
action, to pay the plaintiff the amount of P350,000.00 representing the
unpaid principal of the promissory note, plus 12% interest per annum
and an additional amount equivalent to 1/10 of 1% per day of the total
amount due, as penalty both from and after September 14, 1983, until
fully paid; under the third cause of action, to pay the plaintiff the
further sum of P350,000.00, representing the unpaid principal of the
promissory note, plus 12% interest per annum and an additional
amount equivalent to 1/10 % of 1% per day of the total amount due as
penalty both from and after September 14, 1983, until fully paid; and
to pay the same plaintiff the amount equivalent to 10% of the
foregoing sums, as and for attorney's fees, such amount to bear the
same rate of interest as the principal obligation under each promissory
note, compounded monthly, until fully paid; and to pay the costs of
suit. prLL

SO ORDERED. 1

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 at the back of TCT 410603 on September 15, 1986 and a certificate
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 of sale covering the one-half undivided portion of the property was executed in
favor of Metropolitan Bank and Trust Company. The certificate of sale was
inscribed at the back of said TCT on December 22, 1987.
Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso Roxas
Chua's appeal was dismissed by the Court of Appeals on September 29, 1988
for failure to file brief. 2
On November 21, 1988, Alfonso Roxas Chua executed a public instrument
denominated as "Assignment of Rights to Redeem," whereby he assigned his
rights to redeem the one-half undivided portion of the property to his son,
private respondent Paulino Roxas Chua. 3 Paulino redeemed said one-half share
on the very same day. The instrument was inscribed at the back of TCT 410603
as Entry No. 7629, and the redemption of the property by Paulino was inscribed
as Entry No. 7630, both dated March 14, 1989. 4
On the other hand, in connection with Civil Case No. 85-31257, another
notice of levy on execution was issued on February 4, 1991 by the Deputy
Sheriff of Manila against the right and interest of Alfonso Roxas Chua in TCT
410603. Thereafter, a certificate of sale on execution dated April 13, 1992 was
issued by the Sheriff of Branch 39, RTC Manila in Civil Case No. 85-31257, in
favor of China Bank and inscribed at the back of TCT 410603 as Entry No.
01896 on May 4, 1992. 5
On May 20, 1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted
Civil Case No. 63199 before the RTC of Pasig, Metro Manila against China Bank,
averring that Paulino has a prior and better right over the rights, title, interest
and participation of China Banking Corporation in TCT 410603; that Alfonso
Roxas Chua sold his right to redeem one-half (1/2) of the aforesaid conjugal
property in his favor on November 21, 1988 while China Banking Corporation
acquired its right from the notice of levy of execution dated January 30, 1991;
that the assignment of rights in his favor was annotated at the back of TCT
410603 on March 14, 1989 and inscribed as Entry No. 7629, and his
redemption of the property was effected in an instrument dated January 11,
1989 and inscribed and annotated at the back of TCT 410603 on March 14,
1989, two years before the annotation of the rights of China Banking
Corporation on TCT 410603 on February 4, 1991. LibLex

The trial court rendered a decision on July 15, 1994 in favor of private
respondent Paulino Roxas Chua and against China Banking Corporation, the
decretal portion of which reads:
WHEREFORE, foregoing premises considered, this Court finds
sufficient preponderance of evidence against defendants in favor of
plaintiffs and therefore render ( sic ) judgment ordering defendant to
pay plaintiffs:

a) P100,000.00 as moral damages and P50,000.00 as

exemplary damages plus 12% interest per annum to start
from the date of this decision until fully paid;

b) P100,000.00 attorney's fee; and

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 c) the cost of the suit.

The writ of preliminary injunction issued by this Court on 30 June

1993 enjoining China Banking Corporation, the Sheriff of Manila and
the Register of Deeds of San Juan, their officers, representatives,
agents or persons acting on their behalf from causing the transfer of
possession, ownership and certificate of title or otherwise disposing of
the property covered by TCT No. 410603 in favor of defendant bank or
to any other person is hereby made permanent. The Register of Deeds
of San Juan, Metro Manila is also hereby ordered to cancel all
annotations in TCT No. 410603 in favor of defendant China Banking
Corporation adverse to the rights and interest of plaintiffs.
SO ORDERED. 6

The trial court ruled that the assignment was made for a valuable
consideration and was executed two years before petitioner China Bank levied
the conjugal share of Alfonso Roxas Chua on TCT 410603. The trial court found
that Paulino redeemed the one-half portion of the property, using therefor the
amount of P100,000.00 which he withdrew from his savings account as
evidenced by his bankbook and the receipts of Metrobank for his payment of
the redemption price. The court noted that Paulino at that time was already of
age and had his own source of income. prLL

On appeal, the Court of Appeals affirmed the ruling of the trial court. It
held that petitioner China Bank had been remiss in the exercise of its rights as
creditor; and that it should have exercised its right of redemption under
Sections 29 and 30, Rule 39 of the Rules of Court.
The issues raised by petitioner before us essentially boil down to whether
or not the assignment of the right of redemption made by Alfonso Roxas Chua
in favor of private respondent Paulino was done to defraud his creditors and
may be rescinded under Article 1387 of the Civil Code.
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. Article 1387 reads:
ARTICLE 1387. All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been
entered into in fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before the donation.
Alienation by onerous title are also presumed fraudulent when
made by persons 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.
In addition to these presumptions, the design to defraud
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 creditors may be proved in any other manner recognized by the law 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. LLphil

After his conjugal share in TCT 410603 was foreclosed by Metrobank, the
only property that Alfonso Roxas Chua had was his right to redeem the same, it
forming part of his patrimony. "Property" under civil law comprehends every
species of title, inchoate or complete, legal or equitable.
Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas
Chua, in 1988. Thereafter, Paulino redeemed the property and caused the
annotation thereof at the back of TCT 410603. This preceded the annotation of
the levy of execution in favor of China Bank by two (2) years and the certificate
of sale in favor of China Bank by more than three (3) years. On this basis, the
Court of Appeals concluded that the allegation of fraud made by petitioner
China Bank is vague and unsubstantiated.

Such conclusion, however, runs counter to the law applicable in the case
at bar. Inasmuch as the judgment of the trial court in favor of China Bank
against Alfonso Roxas Chua was rendered as early as 1985, 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, 7 "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."

This presumption is strengthened by the fact that the conveyance has

virtually left Alfonso's other creditors with no other property to attach. 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, 8 the Supreme
Court considered the following instances as badges of fraud:
1. The fact that the consideration of the conveyance is fictitious or
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 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. Cdpr

7. The failure of the vendee to take exclusive possession of all the

property. (Italics provided)

Before China Bank obtained judgment against Pacific Multi Agro-Industrial

Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas Chua
had only his one-half share of the conjugal property in question to pay his
previous creditor, Metrobank. Even his son, private respondent Paulino Roxas
Chua himself, knew this as shown by the following excerpts of his testimony
during the trial:
Q: You said that month before or October 1988 your father
approached you regarding his problem with respect to his
property, subject of this case, can you tell us what in particular
did he tell you about Metrobank?
A: He told me about his problem with Metrobank, about the loan
with Metrobank and Metrobank gonna foreclose his property.
xxx xxx xxx
Q: What did your father tell you regarding his problem?
A: He told me about Metrobank, our house will gonna foreclose
(sic ). He cannot pay Metrobank anymore. His business is down. 9

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," 10 he assigned his right to redeem one-half of the
conjugal property to his son on November 21, 1988.

The Court of Appeals, however, maintained that although the transfer was
made between father and son, the conveyance was not fraudulent since
Paulino had indeed paid the redemption price of P1,463,375.39 to Metrobank
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 and the sum of P100,000.00 to his father. The Court of Appeals reiterated the
findings of the trial court that Paulino at that time had his own source of
income, having been given HK$1 Million by his maternal grandmother which he
used to invest in a buy-and-sell business of stuffed toys.
LLphil

It bears emphasis that it is not sufficient that the conveyance is founded

on a valuable consideration. 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. cdasia

With regard to the finding of the Court of Appeals that petitioner was
remiss in its duties for not having availed of redemption under Rule 39 of the
Rules of Court, it should be borne in mind that petitioner is not limited to the
procedure outlined in Rule 39 of the Rules of Court to enforce its claim against
its debtor Alfonso Roxas Chua. Verily, Article 1387 of the Civil Code clearly
states that conveyances made by the debtor to defraud his creditor may be
rescinded.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals in CA-G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent
injunction enjoining petitioner, the Sheriff of Manila, the Register of Deeds of
San Juan, their officers, representatives, agents and persons acting on their
behalf from causing the transfer of possession, ownership and title of the
property covered by TCT No. 410603 in favor of petitioner 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 petitioner are DECLARED VALID against the one-half
portion of the subject property.
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 SO ORDERED.
Davide, Jr., C.J., Puno and Kapunan, JJ., concur.
Pardo, J., is on official business abroad.

Footnotes
1. Records, p. 89.
2. Records, p. 90.
3. Records, p. 154.

4. Records, p. 54.
5. Records, p. 55.
6. Records, p. 289.
7. 64 SCRA 310, 316 (1975).
8. 21 Phil. 243, 250-51 (1912).

9. TSN, January 14, 1994, p. 20.

10. Records, p. 35.
11. Supra, at 250.

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