G.R. No.

134685 November 19, 1999

MARIA ANTONIA SIGUAN vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM

DAVIDE, JR., C.J.:

DISPOSITIVE PORTION:

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the
Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.

FACTS:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of
her children be rescinded for being in fraud of her alleged creditor, petitioner Maria
Antonia Siguan? This is the pivotal issue to be resolved in this petition for review
on certiorari under Rule 45 of the Revised Rules of Court.

On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of
P300,000 and P241,668, respectively, payable to "cash." Upon presentment by
petitioner with the drawee bank, the checks were dishonored for the reason
"account closed." Demands to make good the checks proved futile. As a
consequence, a criminal case for violation of Batas Pambansa Blg. 22, were filed
by petitioner against LIM. In its decision, the court a quo convicted LIM as
charged. The case is pending before this Court for review.

It also appears that LIM was convicted of estafa by the RTC filed by a certain
Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal,
however, this Court, in a decision 3 promulgated, acquitted LIM but held her civilly
liable in the amount of P169,000, as actual damages, plus legal interest.

Meanwhile, a Deed of Donation 4 conveying 4 parcel of land purportedly executed

by LIM in favor of her children, Linde, Ingrid and Neil and New transfer certificates of
title were thereafter issued in the names of the donees.

Petitioner filed an accion pauliana against LIM and her children to rescind the
questioned Deed of Donation and to declare as null and void the new transfer
certificates of title issued for the lots covered by the questioned Deed. Petitioner
claimed therein that sometime in July 1991, LIM, through a Deed of Donation,
fraudulently transferred all her real property to her children in bad faith and in
fraud of creditors, including her; that LIM conspired and confederated with her
children in antedating the questioned Deed of Donation, to petitioner's and other
creditors' prejudice; and that LIM, at the time of the fraudulent conveyance, left
no sufficient properties to pay her obligations.

The trial court ordered the rescission of the questioned deed of donation; (2) declared
null and void the transfer certificates of title

Court of Appeals, reversed the decision of the trial court and dismissed
petitioner's accion pauliana. It held that two of the requisites for filing an accion
pauliana were absent, namely, (1) there must be a credit existing prior to the
celebration of the contract; and (2) there must be a fraud, or at least the intent to
commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed
and acknowledged before a notary public, appears on its face to have been
executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the
questioned Deed, being a public document, is evidence of the fact which gave
rise to its execution and of the date thereof. No antedating of the Deed of Donation
was made, there being no convincing evidence on record to indicate that the notary
public and the parties did antedate it. Since LIM's indebtedness to petitioner was
incurred in August 1990, or a year after the execution of the Deed of Donation, the
first requirement for accion pauliana was not met.

Her motion for reconsideration is denied.

ISSUE:

whether the questioned Deed of Donation was made in fraud of petitioner and,
therefore, rescissible.

RULING:

NO. We resolve these issues in the negative.

Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and
among them are "those contracts undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them."

The action to rescind contracts in fraud of creditors is known as accion pauliana.

For this action to prosper, the following requisites must be present: (1) the
plaintiff asking for rescission has a credit prior to the alienation, 12 although
demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy to
satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person
who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud. 15
The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. 16 Without any prior existing debt, there can
neither be injury nor fraud. While it is necessary that the credit of the plaintiff in
the accion pauliana must exist prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be subsequent to the
alienation, it is merely declaratory, with retroactive effect to the date when the credit was
constituted.

In the instant case, the alleged debt of LIM in favor of petitioner was incurred in
August 1990, while the deed of donation was purportedly executed on 10 August
1989.

We are not convinced with the allegation of the petitioner that the questioned
deed was antedated to make it appear that it was made prior to petitioner's credit.
Notably, that deed is a public document, it having been acknowledged before a
notary public. 18 As such, it is evidence of the fact which gave rise to its execution
and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.

In the present case, the fact that the questioned Deed was registered only on 2 July
1991 is not enough to overcome the presumption as to the truthfulness of the statement
of the date in the questioned deed, which is 10 August 1989. Petitioner's claim against
LIM was constituted only in August 1990, or a year after the questioned alienation.
Thus, the first two requisites for the rescission of contracts are absent.

Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not
fare well because the third requisite was not met. Under Article 1381 of the Civil
Code, contracts entered into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due them. Also, Article 1383 of
the same Code provides that the action for rescission is but a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. The term "subsidiary remedy" has
been defined as "the exhaustion of all remedies by the prejudiced creditor to
collect claims due him before rescission is resorted to." 19 It is, therefore,
"essential that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged
nor proved that she did so. On this score, her action for the rescission of the
questioned deed is not maintainable even if the fraud charged actually did
exist." 21

The fourth requisite for an accion pauliana to prosper is not present either.

Art. 1387, first paragraph, of the Civil Code provides: "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 . Likewise, Article 759 of
the same Code, second paragraph, states that the donation is always presumed
to be in fraud of creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did
not leave adequate properties which creditors might have recourse for the
collection of their credits existing before the execution of the donation.

As earlier discussed, petitioner's alleged credit existed only a year after the deed
of donation was executed. She cannot, therefore, be said to have been prejudiced
or defrauded by such alienation.

Nevertheless, a creditor need not depend solely upon the presumption laid down in
Articles 759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the
design to defraud may be proved in any other manner recognized by the law of
evidence. Thus in the consideration of whether certain transfers are fraudulent, the
Court has laid down specific rules by which the character of the transaction may be
determined. The following have been denominated by the Court 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; and
 (7) The failure of the vendee to take exclusive possession of
all the property.

The above enumeration, however, is not an exclusive list. The circumstances

evidencing fraud are as varied as the men who perpetrate the fraud in each case. This
Court has therefore declined to define it, reserving the liberty to deal with it under
whatever form it may present itself.

Petitioner failed to discharge the burden of proving any of the circumstances

enumerated above or any other circumstance from which fraud can be inferred.
Accordingly, since the four requirements for the rescission of a gratuitous contract are
not present in this case, petitioner's action must fail.

In her further attempt to support her action for rescission, petitioner brings to our
attention the estafa case filed by Victoria Suarez this Court acquitted LIM of
estafa but held her civilly liable.

It should be noted that the complainant in that case, Victoria Suarez, albeit a
creditor prior to the questioned alienation, is not a party to this accion pauliana.
Article 1384 of the Civil Code provides that rescission shall only be to the extent
necessary to cover the damages caused. Under this Article, only the creditor who
brought the action for rescission can benefit from the rescission; those who are
strangers to the action cannot benefit from its effects. 31 And the revocation is only
to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation
is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
**Note:

Article 759 of the New Civil Code, which provides: "The donation is always presumed to
be in fraud of creditors when at the time of the execution thereof the donor did not
reserve sufficient property to pay his debts prior to the donation." In this case, LIM made
no reservation of sufficient property to pay her creditors prior to the execution of the
Deed of Donation.

Petitioner's contention that the public documents referred to in said Section 23 are only
those entries in public records made in the performance of a duty by a public officer
does not hold water. Section 23 reads:

Sec. 23. Public documents as evidence. — Documents consisting of

entries in public records made in the performance of a duty by a public
officer are prima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter. (Emphasis
supplied).

The phrase "all other public documents" in the second sentence of Section 23 means
those public documents other than the entries in public records made in the
performance of a duty by a public officer. And these include notarial documents, like the
subject deed of donation. Section 19, Rule 132 of the Rules of Court provides:

Sec. 19. Classes of docum/ents. — For the purpose of their presentation

in evidence, documents are either public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and
testaments. . . .

It bears repeating that notarial documents, except last wills and testaments, are public
documents and are evidence of the facts that gave rise to their execution and of their
date.