“The complaint for rescission must allege that successive measures have been taken by the creditor before the action for rescission is instituted.”
We sometimes hear litigants complain about their opponents transferring properties to relatives, friends, or colleagues, thereby frustrating the execution or satisfaction of judgments in their favor. The party is left with an empty bag, so to speak.
Can an aggrieved creditor immediately file an action for the rescission of a contract? The answer is in the negative. Such an action “…cannot be instituted except when the party suffering damage has no other legal means [or remedy] to obtain reparation for the same” (Anchor Savings Bank v. Furigay, et al., G.R. No. 191178, March 13, 2013).
The complaint for rescission must allege that successive measures have been taken by the creditor before the action for rescission is instituted.
These measures are for the creditor to have: (a) exhausted the properties of the debtor through levy on attachment and execution; and (b) exercised all the rights and actions of the debtor (against third parties), save those personal to him (accion subrogatoria) (G.R. No. 191178, March 13, 2013).
Only when these legal remedies are exhausted by the creditor can an action for rescission be commenced.
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 proven futile (G.R. No. 191178, March 13, 2013).
The plaintiff in an accion pauliana must show that: (a) he has credit prior to the alienation, although demandable later; (b) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; and (c) the creditor has no other legal remedy to satisfy his claim but would benefit by the rescission of the conveyance to the third person (G.R. No. 191178, March 13, 2013).
It is equally important that the act being impugned is fraudulent, and that the third person who received the property conveyed, if by an onerous title, has been an accomplice in the fraud.
Accion pauliana presupposes that: 1) there is a judgment; 2) the trial court issued a writ of execution for the satisfaction of the judgment; and 3) the sheriff failed to enforce and satisfy the judgment of the court (G.R. No. 191178, March 13, 2013).
In the case of Anchor Savings Bank (ASB) v. Furigay, ASB filed, in 1999, a verified complaint for a sum of money and damages with an application for replevin against Ciudad Transport Services, Inc. (CTS), its president, Henry H. Furigay; his wife, Gelinda C. Furigay; and a “John Doe” (G.R. No. 191178, March 13, 2013).
While the action was pending, spouses Furigay donated their registered properties in Alaminos, Pangasinan to their three minor children.
In 2003, the Regional Trial Court rendered a Decision ordering CTS and spouses Furigay to pay ASB P8,695,202.59 with interest, penalty charges, liquidated damages, attorney’s fees, and cost of suit (G.R. No. 191178, March 13, 2013).
Claiming that the donation of the properties was in fraud of creditors, ASB filed an action for the rescission of the deed of donation against the Furigay spouses and their children.
The Supreme Court said that “[a] cursory reading of the allegations of [the]… complaint would show that it failed to allege the ultimate facts constituting its cause of action and the prerequisites that must be complied (with) before the same may be instituted” (G.R. No. 191178, March 13, 2013).
“ASB, without availing of the first and second remedies, that is, exhausting the properties of CTS, Spouses Furigay, or their transmissible rights and actions, simply undertook the third measure and filed an action for annulment of the donation. This cannot be done” (G.R. No. 191178, March 13, 2013).
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.
For as long as the creditor still has a remedy at law against the debtor, the creditor will not have any cause of action against the debtor and a third person for the rescission of their contract (G.R. No. 191178, March 13, 2013).
In the case of Siguan v. Lim, et al., the question posed was “whether the deed of donation executed by Rosa Lim [Lim] in favor of her children can be rescinded for being in fraud of her alleged creditor [Siguan].”
Siguan claimed that having issued unfunded checks to her in August 1990, Lim was liable for violation of Batas Pambansa Blg. 22.
Separately, it appeared that on 31 July 1990 Lim was convicted of estafa by the RTC of Quezon City in a criminal case filed by a certain Victoria Suarez.
This decision was affirmed by the Court of Appeals. On appeal, however, the Supreme Court acquitted Lim but held her civilly liable (G.R. No. 134685. November 19, 1999).
On 2 July 1991, a Deed of Donation conveying several parcels of land and purportedly executed by Lim on 10 August 1989 in favor of her children was registered with the Office of the Register of Deeds of Cebu City. Hence, Siguan filed an accion pauliana against Lim and her children to rescind the questioned Deed of Donation (G.R. No. 134685. November 19, 1999).
Siguan’s complaint alleged 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; and that Lim conspired with her children in antedating the questioned Deed of Donation to Siguan’s and other creditors’ prejudice (G.R. No. 134685. November 19, 1999).
The trial court ordered the rescission of the questioned deed of donation.
However, on appeal, the Court of Appeals reversed the decision and dismissed Siguan’s accion pauliana. The Supreme Court found no error in the findings of the Court of Appeals.
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.
Without any prior existing debt, there can neither be injury nor fraud (G.R. No. 134685. November 19, 1999).
Siguan cannot use the estafa case of Victoria Suarez since—although she’s a creditor in another case—she is not a party to this accion pauliana.
Article 1384 of the Civil Code expressly provides that “[R]escission shall be only to the extent necessary to cover the damages caused“ (Article 1384 cited in G.R. No. 134685. November 19, 1999).
Under this Article, only the creditor who brought the action for rescission can benefit from the rescission; those who are strangers to the action (like Suarez) cannot benefit from its effects.
The revocation applies only to the extent of the plaintiff creditor’s unsatisfied credit; as for the excess, the alienation is maintained (G.R. No. 134685. November 19, 1999).
The fact that the Deed of Donation in question was registered only on 2 July 1991, a year after the donation, is also not enough to overcome the presumption of truth regarding the verity of the date in the deed in question, which is 10 August 1989.
Siguan’s claim against Lim was constituted only in August 1990, a year after the questioned alienation (G.R. No. 134685. November 19, 1999).
Furthermore, Siguan failed to prove that she has exhausted all other legal means to obtain the satisfaction of her claim and that the donor Lim did not leave adequate properties which creditors might have recourse for in the collection of their credits existing before the execution of the donation (G.R. No. 134685. November 19, 1999, see Article 1387, Civil Code).
Hence, it is not enough for a complaint to allege that the questioned transfer is in fraud of his or her rights, as the requisites of accion publiciana must be present and proven by evidence.
Failing to do so, the courts will be left with no recourse but to dismiss the action for rescission.