The presumption of fraud under Art. 1387 of the Civil Code does not apply to registered lands if the judgment or attachment made is not also registered

The presumption of fraud under Art. 1387 of the Civil Code does not apply in the present case

 

Under Art. 1381(3) of the Civil Code, contracts, which were “undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them,” are rescissible.  Art. 1387 of the Code states when an act is presumed to be fraudulent, thus:

 

Art. 1387.  All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

 

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued.  The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.

 

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.

 

It is with regard to the foregoing provisions that the CA anchored its ruling of the existence of a presumption of fraud in the instant case.  This presumption, however, finds no application to this case.

 

The presumption of fraud established under Art. 1387 does not apply to registered lands IF “the judgment or attachment made is not also registered.”[46]  In Abaya v. Enriquez,[47] Abaya was able to obtain a judgment against Enriquez for a sum of money, and the judgment was partially unsatisfied after Enriquez made a partial payment.  The judgment and the writ of execution, however, was never annotated on the titles of the registered lands owned by Enriquez.[48]  Subsequently, Enriquez sold the said lands.  In an action for rescission instituted by Abaya, the Court ruled that the presumption of fraud does not apply as the judgment and the attachment have not been registered and annotated on the title.[49]  The Court held:

 

Where the judgment rendered against the defendant x x x has not been entered in the records of the register of deeds, relative to an immovable belonging to the judgment debtor, the subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, unless the complicity of the buyer in the fraud imputed to said vendor is established by other means than the presumption of fraud x x x.[50]

 

 

In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation.  Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies.  But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties.  In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties.  As established in the facts, there were only two annotations at the back of the titles of the Antipolo properties: first, the REM executed in favor of Asiatrust on February 23, 1998; and second, the writ of preliminary attachment in favor of Bangkok Bank on March 18, 1998.  Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply.

 

Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within the meaning of alienation by onerous title under the said provision

 

Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued.  The term, alienation, connotes the “transfer of the property and possession of lands, tenements, or other things, from one person to another.”[51]  This term is “particularly applied to absolute conveyances of real property” and must involve a “complete transfer from one person to another.”[52]  A mortgage does not contemplate a transfer or an absolute conveyance of a real property.[53]  It is “an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt.”[54] When a debtor mortgages his property, he “merely subjects it to a lien but ownership thereof is not parted with.”[55]  It is merely a lien that neither creates a title nor an estate.[56]  It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed.

 

In this very action, Bangkok Bank claims that when the spouses Lee executed the REM in favor of Asiatrust, the presumption of fraud under Art. 1387 became applicable.  We hold in the negative.  As We have plainly discussed, a mortgage is not that which is contemplated in the term “alienation” that would make the presumption of fraud under Art. 1387 apply.  It requires a full and absolute conveyance or transfer of property from one person to another, such as that in the form of a sale. As elucidated earlier, a mortgage merely creates a lien on the property that would afford the mortgagee/creditor greater security in the obligation of the mortgagor/debtor.  This being so, as the REM is not the alienation contemplated in Art. 1387 of the Code, the presumption of fraud cannot apply.

http://sc.judiciary.gov.ph/jurisprudence/2011/february2011/173349.htm

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About Erineus

Born on December 28, 1965, Surallah, South Cotabato, Southern Mindanao, Philippines.
This entry was posted in Land, Obligations and Contracts and tagged . Bookmark the permalink.

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