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Art. 1171 Responsibility arising from fraud is demandable in all obligations.

Any
waiver of an action for future fraud is void. (1102a) refers to incidental fraud w/c
is employed in the fulfillment of an obligation.

Incidental fraud – fraud at the time of the performance of the obligation

Responsibility is demandable in all obligations arising from fraud, you can demand
for payment for damages. If the basis for damages is fraud, the court is not given
the power to mitigate or reduce the damages because in fraud there is bad faith
unlike negligence.

Waiver – renunciation of right

Waiver of an action for future fraud is void. It encourages commission of fraud. To


commit acts of bad faith.

Waiver of action for past fraud is valid. Because it already happened, considered
as an act of generosity. Renounced: the effect of the fraud, the right to indemnity
of the party entitled.

Note: Waiver should be voluntarily signed to be valid. The signee should


understand what he/she enters into.

ARTICLE 1177

The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter
for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them.

Rights of the Creditors

● to levy attachment and execution upon all the property of the debtor, with
exceptions. (see Footnotes P 137.)
● to exercise all the rights and actions of the debtor, except such are
inherently personal to him;
● to ask for the rescission of the contracts made by the debtor in fraud of their
rights
Liability of Debtor’s property

Article 2236. The debtor is liable with all his property, present and future for the
fulfilment of his obligations, subject to the exemptions provided by the law.

Exercise of Debtor’s Right with exceptions

the creditor has an interest in the right or action, because of the insolvency of the
debtor,

malicious or negligent inaction of the debtor as to endanger the claim of the


creditor

the credit is demandable and liquidated

the debtor’s right must be patrimonial, or susceptible of being transformed to


patrimonial value

Exceptions

● right to existence
● rights or relation of a public character
● rights of consisting powers .
● power to administer
● power to carry out an agency or deposit,
● power to accept an offer for a contract
● non-patrimonial rights, (rights arising from family relations)
● patrimonial rights subject to execution, such as pension or government
gratuity
● patrimonial rights inherent in the person of the debtor, ( right to revoke a
donation by reason of ingratitude)
ACCION Subrogatoria – In ACCION SUBROGATORIA, once the creditor has
exhausted the property of debtor, he can step into the shoes of the debtor and
sue the debtor’s debtor.The requirement is that, there must be a prior exhaustion
of property.

● The debtor’s assets must be insufficient to satisfy claims against him


● The creditor must have pursued all properties of the debtor subject to
execution
● The right of action must not be purely personal
● The debtor whose right of action is exercised must be indebted to the
creditor.

Accion Pauliana:-impugn the acts which the debtor may have done to defraud
them (1177) – This has the same concept as Art1381 P3(Rescissible Contracts):
“Those undertaken infraud of creditors when the latter cannot in anyother
manner collect the claims due them.”This allows the creditor to attack contracts
contracted by a debtor towards another:Significance:(1) If the debtor has no
property(2) but, saw transactions by the debtor as regards the sale of his property.

Article 1313
Creditors are protected in cases of contracts intended to defraud them. (n)

Ang mga nagpautang ay protektado sa mga kaso ng mga kontrata na


naglalayong sila ay dayain.

Discussion:

This action is article is an exception to the principle of relativity which covers


contracts that are binding only between parties, their assigns and heirs.

When a debtor intends to defraud his creditor and alienates his property without
leaving enough for them, his creditor may file for rescission of the said contracts.
This action of rescission of contract is also known as accion pauliana.

Fraudulent Insolvency is a serious crime under the Revised Penal Code with the
following essential elements:

That the offender is a debtor; that is, he has obligations which are due and
payable;

That he absconds with his property;

That there be prejudice to his creditors.

Fraudulent Insolvency is punishable with prision mayor if the offender is a


merchant, and prision correcional in its maximum period to prision mayor in its
medium period if not a merchant.

Article 1387

All contracts by virtue of which the debtor alienates property by gratuitous title
are presumed to have been entered into 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 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. (1297a)
Ang lahat ng mga kontrata na sa pamamagitan niyan ang mangungutang ay
magpapakawala ng aririan ayon sa kabutihan loob na titulo ay ipagpapalagay
na iyon ay pinasok na may panlilinlang sa mga nagpapautang, kapag ang
nagbigay ay hindi naglaan nang sapat na ari-arian upang ibayad sa lahat ng
mga pagkakautang napagkasunduan bago maganap ang donasyon.

ang pag-aalis sapamamagitan ng huwad na titulo ay ipinagpapalagay na


panlilinlang kapag ginawa ng tao laban sa kung kanino ang iabang
pagpapasiya ay ginawa sa anu man kaparaanan o may utos na inilabas ng
hukuman na isapi iyon sa pananagutan. Ang pasiya ng pagsasapi ay maaring
hindi doon sa ari-arian pinakawalan na, at saka hindi na kinakailangan na iyon
ay nakuha ng partido na hunihingi nang pagkansila.

Bilang karagdagan sa pagpapalagay na iyo, ang paraan upang linlangin ang


nagpapautang ay maaaring mapatunayan sa ibang pamamaraan na kinikilala
ng batas ukol sa mga katibayan.

Fraud presumed

This provision established prima facie presumption of fraud in the case of


alienation by the debtor of his property. However, the instances mentioned are
not exclusive of others that may be proved in any other manner recognized by
the law of evidence.

Example,Para. 1 of this article;

R made a donation of a parcel of land to E. Before the date of the donation, R


had contracted several debts. With the donation to E, the remaining property of
R is not sufficient to pay all his debts. Under the first paragraph, the donation is
presumed fraudulent unless prove otherwise.

Alienation by onerous under paragraph 2 of this provision

Same example under para. 1, if the contract is a sale.

a) Under the second paragraph, the sale to E is not presumed fraudulent. The
creditors of R must show that the conveyance will prejudice their rights. However,
the presumption of fraud will arise in case the sale was made by R after some
judgement has been issued againts him.
b) Suppose again that C, a creditor of R, has obtained a judgement or writ of
attachment in his favor. Then R sold to D another parcel of land which has not
been levied upon or attached. The sale to D is also presumed fraudulent because
the law says “The decision or attachment need not refer to the property
alienated”.

c) E is another creditor of R. Does he have the right to rescind the sale to D?

Yes, because the law says that “ The decision or attachment… need not have
been obtained by the party seeking the decision.

Circumstances denominated as badge of fraud

The following are some of the circumstances attending sales which have been
denominated by the courts as badges of fraud:

1) The fact that the consideration of the conveyance is fictitious or inadequate;

2) A transfer made by a debtor after suits has been begun and while it is pending
against him;

3) A sale upon credit by an insolvent debtor.

4) The transfer of all of his property by a debtor, especially when he is insolvent or


greatly embarrassed financially;

5) The fact that the transfer is made between father and son, when there are
present some or any of the above circumstances;

6) The failure of the vendee to take exclusive possession of all property.

7) It was known to the vendee that the vendor had no properties other than that
sold to him.

EFFECT OF FRAUD

Fraud is only one of the requisites for the accion pauliana. The existence of fraud
does not make the alienation rescissible whether the fraud is presumed or proven.
If the transferee acquired the thing in good faith and for valuable consideration
even if the debtor who made the alienation act fraudulently, rescission will not be
allowed.
G.R. No. L-25650 June 11, 1975

ISIDORA L. CABALIW and SOLEDAD SADORRA, petitioners,

vs.

SOTERO SADORRA, ENCARNACION SADORRA, EMILIO ANTONIO, ESPERANZA


RANJO, ANSELMO RALA, BASION VELASCO, IGNACIO SALMAZAN, and THE
HONORABLE COURT OF APPEALS, respondents.

Facts:

Isidora Cabaliw (2nd wife of Benigno Sadorra) filed a complaint against her
husband named Benigno Sadorra for the abandonment made by the latter. They
have a daughter named Soledad Sadorra. During their marriage they acquired
two (2) parcels of land located in Nueva Vizcaya. On January 30, 1933, judgment
was rendered requiring Benigno Sadorra to pay his wife the amount of P75.00 a
month in terms of support as of January 1, 1933, and P150.00 in concept of
attorney’s fees and the costs but Benigno failed to comply with the judgement of
the court. Isidora filed a motion to cite Benigno Sadorra for contempt and the
Court of First Instance of Manila authorized Isidora to take possession of the
conjugal property, to administer the same, and to avail herself of the fruits thereof
in payment of the monthly support in arrears. With this order of the Court, Isidora
proceeded to Nueva Vizcaya to take possession of the aforementioned parcels
of land, and it was then that she discovered that her husband had sold them to
his son-in-law Sotero. On February 1, 1940, Isidora filed with the Court of First
Instance of Nueva Vizcaya against her husband and Sotero Sadorra for the
recovery of the lands in question on the ground that the sale was fictitious; at the
same time a notice of lis pendens was filed with the Register of Deeds of Nueva
Vizcaya. In May of 1940, Benigno Sadorra died.

Issue:

Is there a presumption of fraud against Sotero Sadorra?

Ruling:
Yes, it was stated on Art. 1387 that “Alienation 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.” the presumption of
fraud was established at the time of the conveyance. The fact that Sotero was
living with his father-in-law and he knew that there was a judgment directing the
latter to give a monthly support to his wife Isidora and that his father-in-law was
avoiding payment and execution of the judgment. It was known to Sotero that
his father-in-law had no properties other than those two parcels of land which
were being sold to him. The fact that a vendor transfers all of his property to a
third person when there is a judgment against him is a strong indication of a
scheme to defraud one who may have a valid interest over his properties. The
close relationship between Benigno and Sotero is called to be a badge of fraud.

Question:

D donate his two carabaos worth P40,000 to R, and D also indebted to C and B
amounting P30,000. what is the presumption of the donation?

Answer:

The object donated by D is much higher than his debt, under art. 1487 the debt
must be first settled before the donation. Therefore,the donation is presumed
fraudulent unless prove otherwise.

Article 1385

Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever
he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing
the loss. (1295)
Ang pagwawalang bisa sa kontrata ay gumagawa ng obligasyon na ibalik ang
mga bagay na tinutukoy sa kontrata, kasama ng kanyang bunga, at ng halaga
pati interes; dahil dito, magagawa lamang ito kung ang humingi ng
pagwawalang bisa ay maibibiga ang anumang obligahin niyang ibalik.

Hindi mapapawalang bisa ang kontrata kapag ang mga bagay na kailangang
ibalik ay nasa legal na pagmamay-ari na ng ibang tao wala namang masamang
intensyon.

Discussion:

This article provides for mutual restitution where there is delivery on both sides and
both parties must return what they had received from each other. It is not
applicable in cases where the creditor rescinds the contract executed by his
debtor in favor of other persons, because the creditor will not have anything to
restore in the first place since he did not receive anything from the debtor.

However, rescission will not prosper when the thing had already been legally
transferred to a third person, such as by way of sale, and he is in good faith that
the transfer to him will be respected. On the other hand, the thing can be
recovered from the third person if he had acted in bad faith, along with the
imposition of damages for the injury suffered by the complaining party.

What if the thing has been acquired gratuitously from the debtor? Although the
transferee is in good faith, the is still obliged to return the thing under the principle
that no person shall be enriched at the expense and predjudice of other persons
like the creditor. He will restore the property in the condition it may be found
without any liability to pay for the fruits he had received, if any. In addition, he is
entitled to reimbursement for necessary and useful expenses which he incurred
and is not liable for the deterioration of loss of the thing he possessed, unless he
acted with negligence or fraudulent intent, after receiving judicial summons.

ARTICLE 1381

May 12, 2017

Article 1381. The following contracts are rescissible:


(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.


(1291a)

Contracts entered into behalf of wards- a ward is a person under guardianship by


reason of some incapacity.

As a rule, the powers of the guardian with respect to the property of the ward are
limited to mere acts of administration. It must be approved by the courts.

Ex. A is the guardian of B ( ward). A sells the property of B worth 100,000 for only
60,000 pesos.

The contract of sale can be rescinded because the lesion is more than one fourth,
and B can rescind the sale by proper action in court upon reaching the age of
majority.

Contracts agreed upon in representation of absentees- an absentee is a person


who disappears from his domicile, his whereabouts being unknown.

A court may appoint a person to represent him specifying his powers and
obligations.

Likewise, the absentee must suffer lesion by more than one fourth of the value of
the property of the contract to entitle him to the remedy of rescission.

Contracts undertaken by fraud creditors- the action to rescind in fraud creditors


is accion pauliana.

The following requisites must also be present:


There must be existing credit prior to the contract to be rescinded, although it is
not yet due or demandable later

The subsequent contract made by the debtor conveys a patrimonial benefit to a


third person

There must be fraud on the part of the debtor which may be presumed or
proved(Art.1387)

The creditor has no other legal remedy to satisfy his claim(Art 1383), that is he
cannot recover his credit in any other manner, it not being required that the
debtor be insolvent(Art 1177)

Contract which refer to things under litigation- the purpose of the remedy is to
secure the payment of an existing credit of a third person against a third party to
a contract sought to be rescinded.

The right to file the action for rescission arises in favor of the plaintiff when the
defendant enters into a contract over a thing in litigation without the knowledge
or approval of the plaintiff or the court.

Ex. A sues B for the recovery of parcel of land. In this case the land is a thing under
litigation.

If during the pendency of the case, B sells the land to C without the approval of
A or the court, the sale is rescissible .

Other instances or other contracts declared by law that are subject to rescission

Articles 1098- partition, 1189( result of deterioration), 1526 and 1534 (right given to
unpaid seller) 1539(sale of real estate)

Articles 1470, 1659, and also 1382

For us to easily remember what are the rescissible contracts. Don’t forget the
pnemonics WAFLO!

Panlilio vs Victorio

35 Phil. 706 December 12, 1916


Facts: Mariano Torres Pamintuan is the owner of the drugstore, he is indebted to,
Stahl and Rumker and as a result of judgment against him filed by his creditors, his
drugstore would be sold to pay his creditors.

He then connived with a friend, plaintiff, Adriano Panlilio by selling to the latter his
drugstore for the sum of P800.

Stahl and Rumker were not in any way able to recover from the owner,
Pamintuan, so they asked for the rescission of the said sale of the drug store.

ISSUE: Whether or not the rescission will prosper?

HELD: Yes the rescission will prosper. Under Article 1291, now 1381 the following
contract may be rescinded. Par. 3 those executed in fraud of creditors, when the
latter can not recover, in any manner.

QUESTION: What are the five requisite to be a contract rescissible?

Answer: Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.


ANSWER

A.

1) Yes….even if Son Luke is in good faith, Eve can file an action for recession
of the donation to Luke and return the properties to satisfy the debt of
Adam, because the contract of donation is not valid. One cannot donate
property during insolvent time.

Article 1, statement 3, under rescissible contracts, (3) Those undertaken in fraud


of creditors when the latter cannot in any other manner collect the claims due
them;

2) Yes. Under Article 1385 paragraph 2 and 3


● Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act
in bad faith.

● In this case, indemnity for damages may be demanded from the person
causing the loss. (1295)

B.

1) Hans has a better right to the house and lot than Carl because Abee
had accepted Hans offer to buy the house with P200,000.00 as downpayment
and upon receipt of the amount even without the signing yet of deed of sale, the
contract have already been perfected and partially performed thus, the Statute
of Fraud law does not apply in this case. The contract between Hans and Abe
may thus be enforced.

Hans is the first buyer in good faith and Carl is the second buyer in bad faith.
Priority in right, stranger in right.
In Carbonell v. CA Article 1544 provides that for double sale of an
immovable property, the ownership shall belong to the person who first acquired
it in good faith and recorded it in the Registry of Property

Article 1544, New Civil Code, which is decisive of this case, recites:

If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good
faith, if it should movable property.

Should it be immovable property, the ownership shall belong to the person


acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.

3.

Wife Amy and Son Aris are not entitled to recover the condo unit and car
worth P4M from Yna, given to her by Max for the reason that during the donation
Max is already separated but still legally married to his wife Amy.

In Liguez v CA, Conchita Liguez entitled to so much of the donated property


as may be found, upon proper liquidation, not to prejudice the share of the
widow Maria Ngo in the conjugal partnership or the legitimes of Salvador’s forced
heirs. Under the cited Art. 1274, liberality of the donor is deemed causa only in
contracts that are of “pure” beneficence, or contracts designed solely and
exclusively to procure the welfare of the beneficiary, without any intent of
producing any satisfaction for the donor.

Liguez v. CA

G.R. No. L-11240, 18 December 1957

FACTS:

Conchita Liguez filed a complaint against the widow and heirs of Salvador Lopez
to recover a parcel of 51.84 hectares of land in Davao. She averred to be its legal
owner, pursuant to a deed of donation executed in her favor by Salvador. At the
time the deed was executed, Conchita was 16. She had also been living with
Salvador’s parents for barely a month. The deed of donation recites that the
donor Salvador, “for and in consideration of his love and affection” for Conchita,
and “also for the good and valuable services rendered to [Salvador] by
[Conchita], does by these presents, voluntarily give, grant and donate…”

The donation was made in view of Salvador’s desire to have sexual relations with
Conchita. Furthermore, Conchita’s parents would not allow Conchita to live with
him unless he first donated the subject land. The donated land originally belonged
to the conjugal partnership of Salvador and his wife, Maria Ngo. The deed of
donation was inoperative, and null and void because: (a) Lopez had no right to
donate conjugal property to Conchita; and (b) the donation was tainted with
illegal causa or consideration.

ISSUE:

Whether or not the conveyance was predicated on illegal causa.

RULING:

Yes. Conchita Liguez entitled to so much of the donated property as may be


found, upon proper liquidation, not to prejudice the share of the widow Maria
Ngo in the conjugal partnership or the legitimes of Salvador’s forced heirs. Under
the cited Art. 1274, liberality of the donor is deemed causa only in contracts that
are of “pure” beneficence, or contracts designed solely and exclusively to
procure the welfare of the beneficiary, without any intent of producing any
satisfaction for the donor.

In this case, Salvador was not moved exclusively by the desire to benefit
Conchita, but also to secure her cohabiting with him, and so that he could gratify
his sexual impulses. This is clear from Salvador’s confession to two witnesses that
he was in love with her but her parents would not agree unless he donated the
land in question to her. Actually, therefore, the donation was but one part of an
onerous transaction (at least with Conchita’s parents) that must be viewed in its
totality. Thus considered, the conveyance was clearly predicated upon an illicit
causa. Lopez would not have conveyed the property in question had he known
that Conchita would refuse to cohabit with him. The cohabitation was an implied
condition to the donation and being unlawful, necessarily tainted the donation.

Moreover, the CA erred in applying the pari delicto rule. It cannot be said that
both parties had equal guilt. Salvador was a man advanced in years and mature
experience, and Conchita was only 16 when the donation was made. Her
acceptance of the deed does not imply knowledge of conditions and terms not
set forth therein. Witnesses testified that it was Conchita’s parents who insisted on
the donation. The rule that parties to an illegal contract, if equally guilty, will not
be aided by the law but will both be left where it finds them, has been interpreted
by this Court as barring the party from pleading the illegality of the bargain either
as a cause of action or as a defense. But where the plaintiff can establish a cause
of action without exposing its illegality, the vice does not affect the right to
recover.

* Case digest by Vera L. Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018

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