G.R. No. 144169. March 28, 2001.
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners, vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.

FACTS

Petitioner Khe Hong Cheng owned Butuan Shipping Lines. In 1985, a vessel he owned sank, causing the total loss of a copra shipment insured by American Home Insurance Company, which paid the consignee. American Home, subrogated to the consignee’s rights, filed a collection case (Civil Case No. 13357) against Khe Hong Cheng for breach of contract of carriage. While this case was pending, on December 20, 1989, Khe Hong Cheng donated several parcels of land to his children, co-petitioners Sandra Joy and Ray Steven Khe. The deeds were registered, and new titles were issued in the donees’ names.
On December 29, 1993, the trial court rendered a decision in the collection case, ordering Khe Hong Cheng to pay American Home (whose rights were later assigned to respondent Philam Insurance) the sum of P354,000. After the decision became final, a writ of execution was issued. In January 1997, the sheriff discovered that Khe Hong Cheng had no more leviable properties in his name, having previously donated them to his children. Consequently, on February 25, 1997, Philam filed an accion pauliana (Civil Case No. 97-415) to rescind the allegedly fraudulent donations.

ISSUE

Whether the action for rescission of the donations (accion pauliana) had already prescribed when filed on February 25, 1997.

RULING

No, the action had not prescribed. The prescriptive period for an accion pauliana is four years under Article 1389 of the Civil Code. The pivotal question is when this period commences. The Court ruled that the period begins to run from the date the creditor discovers the fraudulent conveyance, not from the date of the conveyance or registration thereof. Citing Article 1383, the Court emphasized that a creditor can only institute such an action after having exhausted all legal means to satisfy the claim against the debtor.
Here, Philam’s cause of action accrued only in January 1997 when, during the execution of the final judgment in the collection case, it was discovered that Khe Hong Cheng had no more properties to satisfy the judgment debt because he had donated them. Prior to this discovery and the return of the unsatisfied writ, Philam could not have validly filed the rescission action, as it had not yet exhausted legal remedies for execution. The complaint filed in February 1997 was thus well within the four-year prescriptive period, counted from January 1997. The Court also noted that petitioners waived any objection to improper venue by not raising it in a timely motion to dismiss or in their answer.