GR 100319; (August, 1996) (Digest)
G.R. No. 100319 August 8, 1996
THE UNION INSURANCE SOCIETY OF CANTON, petitioner, vs. THE COURT OF APPEALS and FAR EAST CHEMCO LEASING AND FINANCING CORPORATION, respondents.
FACTS
Petitioner Union Insurance, as subrogee of Litton Mills, obtained a final judgment against Philippine Tugs, Inc. (PTI) for damages arising from lost and damaged cargo. To execute the judgment, petitioner sought to levy upon two vessels owned by PTI. However, it discovered that PTI had already sold these vessels to respondent Far East Chemco. Petitioner filed a complaint against respondent, alleging the sale was fraudulent and executed to defraud creditors. Petitioner prayed for the return of the vessels or their value. The Regional Trial Court ruled in favor of petitioner, declaring the sale rescinded and ordering respondent to pay the value of the vessels.
The Court of Appeals reversed the trial court’s decision. It found that petitioner failed to prove the sale was fraudulent. More critically, it held that petitioner did not establish it had exhausted all legal remedies against PTI’s other properties, a prerequisite for an action for rescission of a fraudulent conveyance.
ISSUE
Whether the Court of Appeals erred in reversing the trial court and ruling that petitioner was not entitled to rescind the sale of the vessels from PTI to respondent.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals. The legal logic is anchored on the subsidiary nature of an action for rescission of a fraudulent conveyance under Article 1383 of the Civil Code. This action is available only when the creditor has no other legal means to obtain reparation for the damage. The petitioner, as judgment creditor, failed to adduce sufficient evidence showing it had pursued all available legal remedies against PTI’s other properties to satisfy its claim. There was no showing that the vessels were PTI’s only assets or that execution against PTI’s other properties had been returned unsatisfied. Consequently, the prerequisite for the subsidiary action was not met. The Court also noted that ordering respondent to pay would potentially result in unjust enrichment for petitioner, as it could lead to double recovery if PTI later paid the judgment debt. Furthermore, the Court emphasized that factual findings of the Court of Appeals are generally conclusive in a petition for review on certiorari.