G.R. No.

144169 March 28, 200

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM
INSURANCE CO., INC.,respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the decision
of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000 denying the motion
for reconsideration of the aforesaid decision. The original complaint that is the subject matter of this
case is an accion pauliana -- an action filed by Philam Insurance Company, Inc. (respondent Philam)
to rescind or annul the donations made by petitioner Khe Hong Cheng allegedly in fraud of creditors.
The main issue for resolution is whether or not the action to rescind the donations has already
prescribed. While the first paragraph of Article 1389 of the Civil Code states: "The action to claim
rescission must be commenced within four years..." the question is, from which point or event does
this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that on
or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the vessel
M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate,
for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was covered by a
marine insurance policy issued by American Home Insurance Company (respondent Philam's
assured). M/V PRINCE ERlC, however, sank somewhere between Negros Island and Northeastern
Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer, American Home,
paid the amount of P354,000.00 (the value of the copra) to the consignee.1wphi1.nt
Having been subrogated into the rights of the consignee, American Home instituted Civil Case No.
13357 in the Regional Trial Court (RTC) of Makati , Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case was still pending, or on December
20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in favor of his
children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an area of 1,000
square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray Steven.
Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land located in
Butuan City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was cancelled
and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT No. RT-12838 was
cancelled and in lieu thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No.13357 on
December 29, 1993, four years after the donations were made and the TCTs were registered in the
donees' names. The decretal portion of the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant, ordering the latter to pay the former:

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the
complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of execution was forthwith' issued on
September 14, 1995. Said writ of execution however, was not served. An alias writ of execution was,
thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff found no
property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied by counsel of
respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution,
they discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed
the subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of Makati
City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in
favor of his children and for the nullification of their titles (Civil Case No.97-415). Respondent Philam
alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his
creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on the
ground that the action had already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and since the complaint a quo was
filed only on February 25, 1997, or more than four (4) years after said registration, the action was
already barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to the trial court, the prescriptive period began to run
only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam. The
CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381 and
1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for
rescission began to run only in January 1997, and not when the decision in the civil case became final
and executory on December 29, 1993. The CA reckoned the accrual of respondent Philam's cause of
action on January 1997, the time when it first learned that the judgment award could not be satisfied
because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior
thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in
its favor, as prescribed under Article 1383 of the Civil Code.5
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial court
did not commit any error in denying petitioners' motion to dismiss. Their motion for reconsideration
was likewise dismissed in the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:

I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF
DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON
THE GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT THAT AS EARLY
AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER
1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE
THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be
commenced within four years." Since this provision of law is silent as to when the prescriptive period
would commence, the general rule, i.e., from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly instructive:
Art. 1150. 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.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which
determines the starting point for the computation of the prescriptive period for the action.7 Article
1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
It is thus apparent that 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:
1) That the plaintiff asking for rescission has a credit prior to, the alienation, although
demandable later; 2) That the debtor has made a subsequent contract conveying a

patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4)
That the act being impugned is fraudulent; 5) That the third person who received the
property conveyed, if by onerous title, has been an accomplice in the fraud.8 (Emphasis
ours)
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still
has a remedy at law for the enforcement of his claim against the debtor, the creditor will not
have any cause of action against the creditor for rescission of the contracts entered into by
and between the debtor and another person or persons. Indeed, an accion
paulianapresupposes a judgment and the issuance by the trial court of a writ of execution
for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the
debtor. The date of the decision of the trial court against the debtor is immaterial. What is
important is that the credit of the plaintiff antedates that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court against the debtor will retroact
to the time when the debtor became indebted to the creditor.9
Petitioners, however, maintain that the cause of action of respondent Philam against them for the
rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe Hong
Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam allegedly
had constructive knowledge of the execution of said deeds under Section 52 of Presidential Decree No.
1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. - Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the Office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time of
such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all together
ignored. To count the four year prescriptive period to rescind an allegedly fraudulent contract from the
date of registration of the conveyance with the Register of Deeds, as alleged by the petitioners, would
run counter to Article 1383 of the Civil Code as well as settled jurisprudence. It would likewise violate
the third requisite to file an action for rescission of an allegedly fraudulent conveyance of property, i.e.,
the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court of
a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and
satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor:
The date of the decision of the trial court is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision
of the trial court against the debtor will retroact to the time when the debtor became indebted to the
creditor.

Tolentino, a noted civilist, explained:

"xxx[T]herefore, credits with suspensive term or condition are excluded, because the accion
paulianapresupposes a judgment and unsatisfied execution, which cannot exist when the
debt is not yet demandable at the time the rescissory action is brought. Rescission is a
subsidiary action, which presupposes that the creditor has exhausted the property of the
debtor which is impossible in credits which cannot be enforced because of a suspensive term
or condition.
While it is necessary that the credit of the plaintiff in the accion pauliana must be 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."10
These principles were reiterated by the Court when it explained the requisites of an accion pauliana in
greater detail, to wit:
"The following successive measures must be taken by a creditor before he may bring an
action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor
through levying by attachment and execution upon all the property of the debtor, except
such as are exempt from execution; (2) exercise all the rights and actions of the debtor, save
those personal to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana). Without availing of the first
and second remedies, i.e.. exhausting the properties of the debtor or subrogating themselves
in Francisco Bareg's transmissible rights and actions. petitioners simply: undertook the
third measure and filed an action for annulment of sale. This cannot be done."11 (Emphasis
ours)
In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of
the accion pauliana on the basis of lack of cause of action:
"In this case, plaintiffs appellants had not even commenced an action against defendantsappellees Bareng for the collection of the alleged indebtedness, Plaintiffs-appellants had not
even tried to exhaust the property of defendants-appellees Bareng, Plaintiffs-appellants, in
seeking the rescission of the contracts of sale entered into between defendantsappellees, failed to show and prove that defendants-appellees Bareng had no other
property, either at the time of the sale or at the time this action was filed, out of which they
could have collected this (sic) debts." (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had
executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had no
inkling, at the time, that the trial courts judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng
during the pendency of the case. Had respondent Philam filed his complaint on December 27, 1989,
such complaint would have been dismissed for being premature. Not only were all other legal remedies
for the enforcement of respondent Philam's claims not yet exhausted at the time the needs of donation
were executed and registered. Respondent Philam would also not have been able to prove then that

petitioner Khe Hong Cheng had no more property other than those covered by the subject deeds to
satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he had
reserved to himself property sufficient to answer for his debts contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed in the next preceding
paragraph, that this donation is not made with the object of defrauding his creditors having
reserved to himself property sufficient to answer his debts contracted prior to this date".12
As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City
to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action for rescission of the deeds of
donation accrued because then it could be said that respondent Philam had exhausted all legal means
to satisfy the trial court's judgment in its favor. Since respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its discovery that petitioner
Khe Hong Cheng had no other property to satisfy the judgment award against him, its action for
rescission of the subject deeds clearly had not yet prescribed.1wphi1.nt
A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming that
respondent Philam's complaint is a real action and should have been filed with the RTC of Butuan City
since the property subject matter or the donations are located therein. Suffice it to say that petitioners
are already deemed to have waived their right to question the venue of the instant case. Improper
venue should be objected to as follows 1) in a motion to dismiss filed within the time but before the
filing of the answer;13 or 2) in the answer as an affirmative defense over which, in the discretion of the
court, a preliminary hearing may be held as if a motion to dismiss had been filed.14 Having failed to
either file a motion to dismiss on the ground of improper of venue or include the same as an
affirmative defense in their answer, petitioners are deemed to have their right to object to improper
venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
SO ORDERED.
Davide, Jr., Puno, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 134685 November 19, 1999

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

DAVIDE, JR., C.J.:

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.

New transfer certificates of title were thereafter issued in the names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of
the RTC of Cebu City 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. The complaint was
docketed as Civil Case No. CEB-14181. 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.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal
Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the
Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she had sufficient property. Finally, she alleged
that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.

The relevant facts, as borne out of the records, are as follows:

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, docketed as Criminal Cases Nos.
22127-28, were filed by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of
Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted LIM as charged. The
case is pending before this Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal
Case No. Q-89-2216 2 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 on 7 April 1997, acquitted LIM
but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 563 sq. m. and covered by TCT No.
93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 600 sq. m. and covered by TCT No.
93434;
(3) a parcel of land situated at Cebu City containing an area of
368 sq. m. and covered by TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an
area of 511 sq. m. and covered by TCT No. 87020.

In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of
donation; (2) declared null and void the transfer certificates of title issued in the names of private
respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said
titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the
petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees;
and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, 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.
Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987,
the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice the
creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits the
following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO
IN FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].

Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of
creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case
of Oria v. McMicking, 8which enumerated the various circumstances indicating the existence of fraud
in a transaction. She reiterates her arguments below, and adds that another fact found by the trial
court and admitted by the parties but untouched by the Court of Appeals is the existence of a prior
final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIM's
judgment creditor before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9 Rule
132 of the Rules of Court, in holding that "being a public document, the said deed of donation is
evidence of the fact which gave rise to its execution and of the date of the latter." Said provision should
be read with Section 30 10 of the same Rule which provides that notarial documents are prima
facie evidence of their execution, not "of the facts which gave rise to their execution and of the date of
the latter."
Finally, petitioner avers that the Court of Appeals overlooked 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.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion
pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit
of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the Court of
Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner
failed to present convincing evidence that the Deed of Donation was antedated and executed in fraud
of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages, attorney's
fees and expenses of litigation because there is no factual basis therefor in the body of the trial court's
decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of
petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages, attorney's
fees and expenses of litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of
Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the
latter court are conclusive, except in a number of instances. 11 In the case at bar, one of the recognized
exceptions warranting a review by this Court of the factual findings of the Court of Appeals exists, to
wit, the factual findings and conclusions of the lower court and Court of Appeals are conflicting,
especially on the issue of whether the Deed of Donation in question was in fraud of creditors.

prior to the alienation, 12although 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. 17
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.
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) . . .

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

(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.
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." 19It 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.
Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM
had the following properties:
(1) A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in Sto.
Nio Village, Mandaue City, Cebu, registered in the name of
Rosa Lim and covered by TCT No. 19706; 22
(2) A parcel of land located in Benros Subdivision, Lawa-an,
Talisay, Cebu; 23

(3) A parcel of land containing an area of 2.152 hectares, with

coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13571. 25
During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by
her in the amount of about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did
you acquire this property?
A Including the
P900,000.00.

residential

house

P800,000.00

to

Q How about the lot which includes the house. How much
was the price in the Deed of Sale of the house and lot at Sto.
Nio Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and
4, the total market value stated in the tax declarations dated 23 November 1993 was
P56,871.60. Aside from these tax declarations, petitioner did not present evidence that
would indicate the actual market value of said properties. It was not, therefore, sufficiently
established that the properties left behind by LIM were not sufficient to cover her debts
existing before the donation was made. Hence, the presumption of fraud will not come into
play.
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;

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.

(3) A sale upon credit by an insolvent debtor;

No pronouncement as to costs.

(4) Evidence of large indebtedness or complete insolvency;

SO ORDERED.

(5) The transfer of all or nearly all of his property by a debtor,

especially when he is insolvent or greatly embarrassed
financially;

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

(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. 28
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. 29
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 31
July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was
therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000
for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court of Appeals.
Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for P169,000 as
actual damages.
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.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of
litigation in favor of the petitioner. We have pored over the records and found no factual or legal basis
therefor. The trial court made these awards in the dispositive portion of its decision without stating,
however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals correctly
deleted these awards for want of basis in fact, law or equity.