CHINA BANKING CORPORATION vs.
CA Hence, the law presumes that there is fraud of creditors
G.R. No. 129644. March 7, 2000
Nature: Motion for Reconsideration of the Decision dated
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creditors and may be rescinded under Article 1387 of the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.
HELD: YES
Rationale: 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.
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, 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."
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.
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.

Decision: RECONSIDERED AND SET ASIDE.