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KHE HONG CHENG vs. COURT OF APPEALS, G.R. No. 144169, March 28, 2001.

Facts: Petitioner Khe Hong Cheng was the owner of Busan Shipping Lines. It shipped copra aboard a
ship that sank. The said shipment was covered by an insurance policy from American Home Insurance
Company, respondent Philam’s assured. American Home then filed a case against petitioner to
recover the money paid to the consignee.Petitioner then donated parcels of land to his children. The
trial court decided in favor of Philam. It became final and executory, and the sheriff was ordered to
carry out the order of the trial court. But then the sheriff found out that Petitioner no longer had any
property registered in his name, as all of them were donated to his children. Philam then filed a case
for nullification of the donated land titles. Philam also alleged that that petitioner executed the deeds
of donation in fraud of his creditors. Petitioners moved to dismiss the complaint against them saying
that the action against them had already prescribed, but this was denied. The CA affirmed the trial
court decision in favor of Philam saying that the action to rescind the donations had not yet
prescribed. Aggrieved, petitioner now seeks recourse to the SC.

Issue: WON the action to rescind the deeds of donation filed by Philam had already prescribed.

Held: No it did not. The action to rescind the deeds of sale issued in favor of petitioner’s children only
commenced to run from the time they had a legal possibility to file such action. An accion pauliana
must be the last resort, and can only be availed once all legal remedies have been exhausted, to no
avail. 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.
Petitioners further argue that the Civil Code must yield to the Mortgage and Registration Laws that
provides that Philam had constructive knowledge of the transfer of petitioner’s property, thus, the
action had already prescribed. This is misplaced as Philam still had other legal remedies to satisfy their
claim, thus the action could not have been properly filed. The action for rescission could only run
when all legal remedies had been exhausted. When Philam learned that the judgment of the trial
court in their favor could no longer be implemented due to the unlawful conveyances made by
petitioner to his children, it was only then that Philam instituted this action for rescission. Thus, this
was the time when the prescriptive period commenced to run. Thus, Philam’s action had not
prescribed, and the filing of the accion pauliana was filed timely.

Decision: Petition is DISMISSED for lack of merit.

SIGUAN vs. LIM, G.R. No. 134685, November 19,1999, 318 SCRA 725.

Facts: Respondent Lim issued checks in favor of petitioner Siguan which bounced due to the account
being closed. As a consequence, a criminal case for violation of BP 22 was filed, to which Lim was
convicted. It also appeared that before that, Lim was also convicted for estafa, but the SC acquitted
her, but made her civilly liable for damages. In 1991, Lim then issued a Deed of Donation conveying
parcels of land to her children. Petitioner then filed an accion pauliana against Lim and her children to
rescind the questioned Deed of Donation. Petitioner claimed that Lim conveyed the parcels of land in
her name to her children in bad faith and in fraud to creditors. Lim denied any liability to petitioner.
The trial court ordered the rescission of the deed of donation, but the CA, on appeal, reversed he RTC.
It argued that certain requisites for an accion pauliana were missing, that there must be a credit prior
to the execution of the contract and that there must be fraud to prejudice the creditor seeking the
rescission. Aggrieved, petitioner now goes to the SC for recourse.

Issue: WON the Deed of Donation was entered into in fraud of creditors.
Held: No it was not. An action to rescind contracts in fraud of creditors is an accion pauliana. For this
to prosper, 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. The general rule is that rescission
requires the existence of creditors at the time of the alleged fraudulent transaction. Without any prior
existing debt, there can be no injury nor fraud. In the instant case, the alleged debt of Lim was
incurred in 1990, while the deed was executed in 1989. Thus there was no fraud to speak of. Secondly,
even if the Deed was issued after Lim incurred debt, it the accion pauliana still could not prosper as
petitioner still had other legal remedies which could be exhausted. The general rule is that accion
pauliana can only be availed of if there are no longer any legal remedies available to the petitioner.
Petitioner failed to discharge the burden of proving any circumstance wherein fraud can be inferred.
Thus, the requirements for rescission of a gratuitous contract are not present in this case, petitioner’s
action must fail.

Decision: The petition is DISMISSED, and the challenged decision of the Court of Appeals is AFFIRMED.

TANGUILING vs. COURT OF APPEALS, 266 SCRA 78 [January 2, 1997].

Facts: Petitioner proposed to respondent to construct a windmill system for him. They agreed to such
construction, and pursuant to the agreement, respondent paid petitioner P30,000.00 as an
installment payment of P15,000.00 leaving a balance of P15,000.00. Due to the refusal and failure of
respondents to pay the petitioner, petitioner filed a complaint for collection of money. Respondent
answered that he already paid the amount to the San Pedro General Merchandising Inc. (SPGMI)
which constructed a deep well to which the windmill system was connected. And that assuming that
he owed petitioner money, it was already offset by defects in the windmill system which cause the
structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a
deep well was part of their agreement. And that the windmill fell down, not due to a construction
defect but due to a fortuitous event. The RTC held that the construction of the deep well was not part
of the agreement but that there was no clear and convincing evidence that the windmill system fell
down due to a construction defect. The CA on appeal, reversed the RTC ruling stating that the
construction of a deep well was part of the agreement as evidenced by mention of “deep wells” in
both proposals agreed upon by both parties. Furthermore, the CA said that the falling down of the
windmill system was due to a construction defect and it ordered petitioner to reconstruct the
windmill in accordance with the agreement.

Issue: WON the agreement to construct the windmill system included the construction of a deep well,
and whether the petitioner is under obligation to reconstruct the windmill after it collapsed.

Held: The SC reversed the CA on the first issue, but sustained it on the second issue. As to the first
issue, there is no evidence that the construction of a deep well was part of the agreement entered
into by both parties as no “deep well” was ever mentioned in the agreement. There is mention of
“deep wells” in the agreement but these do not indicate that a deep well is part of the windmill
system. It is a cardinal rule in construction that in the interpretation of contracts, the intentions of the
parties are given primary consideration and in case of doubt, their contemporaneous and subsequent
acts shall be principally considered. The witness presented by the respondent to sustain their claim
that the construction of the deep well was part of the agreement cannot be given credence as the
testimony is unsubstantiated. As to the second issue, petitioner is indeed under obligation to
reconstruct the windmill system as there were indeed defects in the construction of the windmill.
Their invocation of a fortuitous event is not tenable as for the invocation of fortuitous events to be
tenable, there must be no sign of human intervention and that such fortuitous event should be
unforeseeable or unavoidable. In this case, a strong wind is neither unforeseeable or unavoidable and
thus cannot be fortuitous as strong winds are necessary for windmills to turn. Finally, petitioner’s
arguments that respondent is already in default cannot stand as in reciprocal obligations, neither
party incurs delay if the other does not comply or is not ready to comply with the agreement or
obligation.When the windmill failed to function properly, it was petitioner’s obligation to repair the
same as already agreed upon, thus respondent cannot be said to have incurred delay, and it is
petitioner’s obligation to bear the expenses for the reconstruction of the windmill.

Decision: The decision appealed is MODIFIED.

CHAVEZ v. GONZALES, GR No. L-27454, April 30, 1970.

Facts: Chavez delivered to Gonzales, who is a typewriter repairer a portable typewriter for cleaning
and servicing. Gonzales was not able to finish the job despite repeated by Chavez.. Gonzales merely
made assurances which he did not comply with. Then, Gonzales asked for P6.00 for the purchase of
spare parts which Chavez gave. Then, after getting tired of numerous delays, Chavez wrote a formal
Chavez, but when Chavez checked the typewriter’s condition, it was in shambles. Many parts were
missing from it. Chavez demanded the missing parts from Gonzales which he gave, and Chavez had his
typewriter repaired somewhere else, at the cost of P 89.95. Chavez then filed a complaint against
Gonzales for damages amounting to more than P1,000.00. The trial court ruled in his favor, but only
awarded him P31.10 as damages for the repair of the typewriter. Although he won, Chavez felt
aggrieved and shortchanged by the amount awarded to him by the trial court, thus Chavez recourses
to the SC for relief.

Issue: WON Gonzales is guilty of contravention of tenor, and whether the amount of P31.10 awarded
by the trial court to Chavez is justifiable.

Held: Gonzales argues that he his not guilty of delay of his obligation to Chavez, as he did not stipulate
a period within which to comply with the obligation. But, as can be inferred from the evidence
presented, both parties executed a perfected contract in which, for a fee which was to be paid by
Chavez, Gonzales would repair and service the typewriter which was to be finished in the future,
although the time frame for him to do so was not specified. The mere fact that Gonzales returned the
typewriter to Chavez in shambles already constituted a breach of obligation. The time for his
compliance had evidently expired and there was no need for Chavez to specify a time frame for such
would only be a mere formality and would serve no other purpose but to delay the performance of
the obligation. It is clear that Gonzales contravened the tenor of his obligation not only when he failed
to repair the typewriter of Chavez, but when he returned the same in shambles. Thus, Gonzales is
liable for the costs of repairing Chavez’s typewriter amounting to P89.95. As to the moral damages
which the trial court rejected, since Chavez did not allege such in his complaint, the trial court was
correct in not awarding him moral damages.

Decision: Defendant Gonzales is ordered to pay plaintiff Chavez the cost of repairing his typewriter at
P89.95 with interest.