Civil Law

KHE HONG CHENG v. CA G.R. No. 144169 March 28, 2001 Accion Pauliana, Rescission of Contracts, Prescription

FACTS:

The Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, of Butuan Shipping Lines, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, for delivery to Dipolog City, Zamboanga del Norte. The shipment was covered by a marine insurance policy issued by American Home Insurance Company.

M/V PRINCE ERIC, however, sank, 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.

Having been subrogated into the rights of the consignee, American Home instituted Civil Case No. 13357 to recover the money paid to the consignee, based on breach of contract of carriage. While the case was still pending, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children. 

The trial court rendered judgment against Cheng, four years after the donations were made and the TCTs were registered in the donees’ names.

A writ of execution was forthwith issued. However, it was not served. After an alias writ of execution was issued, and 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. It was discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed the subject properties to his children.

Respondent Philam filed a complaint 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, alleging, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his creditors, including respondent Philam. 

Petitioners 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. 

The trial court denied the motion to dismiss. It held that respondent Philam’s complaint had not yet prescribed. 

On appeal, the CA affirmed the trial court’s decision in favor of respondent Philam.  

Their motion for reconsideration was likewise dismissed.

Petitioners now assail the aforesaid decision and resolution of the CA.

ISSUE:

Whether Philam’s action for rescission of the subject deeds of donation has already prescribed.

RULING:

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. 

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. 

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 pauliana presupposes 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. 

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. 

In this case, 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.

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