378 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

*
G.R. No. 129644. March 7, 2000.

CHINA BANKING CORPORATION, petitioner, vs. HON. COURT

OF APPEALS, PAULINO ROXAS CHUA and KI-ANG MING
CHU CHUA, respondents.

Actions; Contracts; Rescission; Under Article 1387 (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.—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.
Same; Same; Same; Presumption of Fraud.—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.
Words and Phrases; Property; Property under civil law comprehends
every species of title, inchoate or complete, legal or equitable.—After his
conjugal share in TCT 410603 was foreclosed by Metro-

________________

* FIRST DIVISION.

379

VOL. 327, MARCH 7, 2000 379

China Banking Corporation vs. Court of Appeals

bank, 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.
Actions; Contracts; Rescission; Fraud; Where the judgment of the trial
court in favor of a creditor was rendered as early as 1985, there is a
presumption that the 1988 sale of judgment debtor’s property, in this case
the right of redemption, is fraudulent under Article 1387 of the Civil Code.
—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, “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.”
Same; Same; Same; Badges of Fraud.—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 trans-

380

380 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

fer 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)
Same; Same; Same; 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.—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, x x x 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.

PETITION for review on certiorari of a decision of the Court of

Appeals.

The facts are stated in the opinion of the Court.

     Lim, Vigilia, Alcala, Dumlao & Orencia for petitioner.
     Nogales Law Office for private respondents.

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VOL. 327, MARCH 7, 2000 381

China Banking Corporation vs. Court of Appeals

YNARES-SANTIAGO, J.:

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
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.
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 an-

382

382 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

chored 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.
1
SO ORDERED.

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 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.

________________

1 Records, p. 89.

383

VOL. 327, MARCH 7, 2000 383

China Banking Corporation vs. Court of Appeals

Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso

Roxas Chua’s appeal was dismissed by the Court of Appeals on
2
September 29, 1988 for failure to file brief.
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
3
of the property to his son. private respondent Paulino Roxas
Chua. 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 4
was
inscribed as Entry No. 7630, both dated March 14, 1989.
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
5
at the back of TCT 410603 as Entry No.
01896 on May 4, 1992.
 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

________________

2 Records, p. 90.
3 Records, p. 154.
4 Records, p. 54.
5 Records, p. 55.

384

384 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

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.
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
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.
6
SO ORDERED.

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 Pau-

_________________

6 Records, p. 289.

385

VOL. 327, MARCH 7, 2000 385

China Banking Corporation vs. Court of Appeals

lino 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.
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:

Art. 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 creditors may be
proved in any other manner recognized by the law of evidence.

386

386 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

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.

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 mad 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
7
stated in the case of Cabaliw vs. Sadorra, “the parties here
________________

7 64 SCRA 310, 316 (1975).

387

VOL. 327, MARCH 7, 2000 387

China Banking Corporation vs. Court of Appeals

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
8
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)

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

________________

8 21 Phil. 243, 250-51 (1912).

388
388 SUPREME COURT REPORTS ANNOTATED
China Banking Corporation vs. Court of Appeals

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.
  x x x      x x x      x x x
Q: What did your father tell you regarding his problem?
A: He told me about Metrobank, our house will gonna foreclose
9
(sic). He cannot pay Metrobank anymore. His business is down.

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
10
Multi Agro-Industrial Corporation, et al, Defendants-Appellants”
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 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

_________________

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

10 Records, p. 35.

389

VOL. 327, MARCH 7, 2000 389

 China Banking Corporation vs. Court of Appeals

his own source of income, having been given HK$1Million by his

maternal grandmother which he used to invest in a buy-and-sell
business of stuffed toys.
It bears emphasis that it is not sufficient that the conveyance is
founded on11 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, x x x 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.
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

_________________

11 Supra, at 250.

390

390 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

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.
SO ORDERED.

          Davide, Jr. (C.J., Chairman), Puno and Kapunan, JJ.,

concur.
     Pardo, J., On official business abroad.

Petition granted, judgment reversed and set aside.

Notes.—A party to a compromise cannot ask for a rescission

after it has enjoyed its benefits. (Sanchez vs. Court of Appeals, 279
SCRA 647 [1997])
An unopposed rescission of a contract has legal effects. (People’s
Industrial and Commercial Corporation vs. Court of Appeals, 281
SCRA 206 [1997])
In an action for annulment or rescission of a contract of sale, the
same should be considered as one which is not capable of pecuniary
estimation and docket fee charged should be a flat rate of P400.00,
and the subject matter of the contract

391

VOL. 327, MARCH 7, 2000 391

Villanueva vs. United Coconut Planters Bank

should not be used as basis. (De Leon vs. Court of Appeals, 287
SCRA 94 [1998])
The circumstances evidencing fraud are as varied as the men who
perpetrate the fraud in each case. (Siguan vs. Lim, 318 SCRA 725
[1999])

——o0o——
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