Contracts in fraud of creditors - G.R. No. 176008

G.R. No. 176008 (click link)

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Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.²²

However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).²³ It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile.²⁴

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature.²⁵ It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.²⁶ This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

Metrobank also contends that in order to apply the concept of, and the rules pertaining to, accion pauliana, the subject matter must be a conveyance, otherwise valid, which is undertaken in fraud of creditors. Metrobank claims that since there is no conveyance involved in the contract of chattel mortgage between SSC and IEB, which Metrobank seeks to rescind, the CA erred in ruling that the latter's Complaint-in-Intervention is an accion pauliana.

The Court is not persuaded.

In the instant case, the contract of chattel mortgage entered into by and between SSC and IEB involves a conveyance of patrimonial benefit in favor of the latter as the properties subject of the chattel mortgage stand as security for the credit it extended to SSC. In a very recent case involving an action for the rescission of a real estate mortgage,²⁷ while this Court found that some of the elements of accionpauliana were not present, it found that a mortgage contract involves the conveyance of a patrimonial benefit.

In sum, Metrobank may not be allowed to intervene and pray for the rescission of the chattel mortgages executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the nature of an accion pauliana which, under the factual circumstances obtaining in the present case, may not be allowed. Based on the foregoing, the Court finds no error in the ruling of the CA that the RTC committed grave abuse of discretion in allowing Metrobank's intervention.

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