Coloquio, Jo-Anne

Requisites and prescription period for Accion Pauliana (Action for Rescission)

Khe Hong Cheng v. Court of Appeals

28 March 2001
Kapunan, J.
Petition: Petition for review on certiorari of a decision of the Court of Appeals

Parties:
Khe Hong Cheng alias Felix Khe, Sandra Joy Khe, Ray Steven Khe- plaintiffs-appellees
Court of Appeals (Hon. Guadiz), Philam Insurance Co, Inc. - defendants-appellants

Facts: Petition for review on certiorari under Rule 45 seeking to set aside the decision of the CA denying the motion for
reconsideration. The original subject matter of the case is an accion pauliana an action filed by respondent Philam Insurance
Company, Inc, to rescind or annul the donations made by petitioner Khen Hong Cheng allegedly in fraud of creditors. Petitioner is
the owner of Butuan Shipping Lines. On Oct 4, 1985 the Philipine Agricultural Trading Corporation shipped on board the vessel
M/V PRINCE ERIC owned by petitioner 3400 bags of copra for delivery. The shipment was covered by a marine insurance policy
issued by American Home Insurance Company. The ship sank, causing the total loss of the shipment. The insurer paid 354,000 to
the consignee and it eventually sought for reimbursement from the petitioner, based on breach of contract of carriage. While the
case was pending, petitioner executed deeds of donations of parcels of land located in Butuan City in favor of his children herein
co-petitioners and TCTs were then issued in their names. The trial court rendered judgment against petitioner four years after the
donations were made and the TCTs registered. A writ of execution was issued but the sheriff found no property under the name of
either Butuan Shipping Lines or Khe Hong Cheng. They eventually discovered that Khe Hong Cheng no longer had any property
and that he conveyed the subject properties to his children. On February 25, 1997 Philam filed a complaint with RTC Makati for the
recission of the deeds of donation and for the nullification of the titles. The allegation was that the deeds were executed in fraud of
the petitioners creditors. The petitioners moved for dismissal on the ground that the action had already prescribed. They further
asserted that the registration of the deeds constituted constructive notice and since the complaint was filed only on Feb 25, 1997 or
more than 4 years after said registration, the action was already barred by prescription. The trial court ruled that it had not yet
prescribed for the period began to run from December 29, 1993. On appeal by petitioners, citing Articles 1381 and 1383 of the Civil
Code CA ruled that the 4-year period to institute action for rescission began to run only in January 1997 when it first learned that
the judgment award could not be satisfied because petitioner had no more properties in his name. Prior thereto Philam had not yet
exhausted all legal means for the satisfaction of the decision in its favor (Art 1383). The CA thus denied the petition as well as the
subsequent motion for reconsideration thus this petition.

Issue: When did the four 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?

Ruling: WHEREFORE, petition denied for lack of merit.

Art 1389 of the Civil Code states that the action to claim rescission must be commenced within 4 years and since it is silent as to when the
prescriptive period starts, Art 1150 states that it starts from the moment the cause of action accrues. It is the legal possibility of bringing
the action, as Art 1383 states that an action for rescission (Accion Pauliana) cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. When the party has exhausted all the other legal remedies and have been proven
futile. For an Accion Pauliana to accrue it must be of last resort and the following requisites are: (1) plaintif asking for rescission has a
credit prior to the alienation, although demandable later (2) the debtor has made a subsequent contract conveying patrimonial benefit to a
third person (3) that the creditor has no other legal remedy to satisfy his claim, but would benefit by the rescission of the conveyance to the
third person (4) that the act is fraudulent (5) that the third person who received the property conveyed, if by onerous title has been an
accomplice in the fraud. The action presupposes as judgment and the issuance of a writ of execution and the failure of the sheriff to enforce
and satisfy the judgment of the court, that the creditor has exhausted the property of the debtor. The date of the decision of the court is
immaterial for what matters is the credit of the plaintiff occurs before that of the fraudulent alienation by the debtor of his property. The
decision will retroact to the time when the debtor became indebted to the creditor. The cause of action accrued as early as Dec 27, 1989
when petitioner registered the conveyances with the Register of Deeds. The petitioner invokes Sec 52, PD 1529 which states that the
registration in the Office of the Register of Deeds is a constructive notice to all persons, but the provisions of the Civil Code may not be
ignored. It would be inconsistent with Art 1383 and would violate the third requisite for Accion Pauliana which is to file an action when
the creditor has no other legal remedy. To add, the complaint against the Khe Hong Cheng was still pending so Philam had no idea that the
courts judgment would be in its favor and that the judgment would not be satisfied to the conveyance of the subject properties. If Philam
filed it on Dec 27, 1989 it would have been dismissed for prematurity. Khe Hong Cheng even stressed that he reserved to himself property
sufficient to answer for the debts he contracted prior, so the action for rescission only accrues by the time Philam foudnm out that Khe
Coloquio, Jo-Anne

Hong Cheng had no longer any properties in his name (Jan 1997) the time it can be said that Philam had exhausted all legal means to
satisfy the judgment in its favor. So the action had not yet prescribed.

Notes: The petitioners also raised a defense of improper venue, that Philams complaint should have been filed with the RTC of
Butuan since that is where the donations are located. The right to question the venue should be objected in two ways: (1) motion to
dismiss filed within the time before filing an answer (2) In the answer of 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. Petitioners failed to perform any of the two ways,
so they are deemed to have waived their right to object.