G.R. No. 27054 , September 9, 1927
MACARIA SOLIS, plaintiff-appellant, vs. CHUA PUA HERMANOS and CARLOS ILUSTRE, defendants-appellees.

DOCTRINE:
A voluntary conveyance (one without consideration) is valid as between the parties. To have it declared fraudulent as against creditors, it must be proven that: (1) a creditor existed at the time of the conveyance; (2) the conveyance was made to defraud that creditor; and (3) the debtor had no other sufficient property to satisfy the creditor’s claim. The action for rescission of a fraudulent conveyance is subsidiary in nature.

FACTS

1. Macaria Solis filed an action to annul an attachment levied by Sheriff Carlos Ilustre, at the instance of Chua Pua Hermanos, on a house and lot in Lipa, Batangas, and to recover damages.
2. The property was originally owned by Justo Reyes and Maria Laygo, who sold it to Jose H. Katigbak on December 23, 1918.
3. On February 6, 1921, Jose H. Katigbak executed a deed conveying the same property to Macaria Solis (his aunt) and Pablo S. Katigbak (his brother) for a purported consideration of P40,000. The parties lived together in the house.
4. Nearly a year later, Chua Pua Hermanos sued Jose H. Katigbak for a sum of money and caused an attachment to be levied on the property.
5. Macaria Solis filed a third-party claim, but the sheriff maintained the levy after being indemnified by Chua Pua Hermanos.
6. In her complaint, Macaria Solis sought to annul the attachment. Chua Pua Hermanos, in their answer, claimed the deed was simulated and executed to defraud creditors, and they prayed for the deed to be declared void and the attachment upheld.
7. The trial court found the deed to be simulated and fictitious, executed to hinder creditors, and absolved the defendants. Macaria Solis appealed.

ISSUE

Was the deed of conveyance executed by Jose H. Katigbak in favor of Macaria Solis and Pablo S. Katigbak fraudulent as against creditors, warranting the denial of Macaria Solis’s action to annul the attachment?

RULING

NO. The Supreme Court reversed the trial court’s decision and remanded the case for a new trial.

1. Simulation of the Deed: The Court agreed with the trial court’s finding that the deed was simulated, as Macaria Solis likely did not pay the stated consideration of P40,000. However, a voluntary conveyance is valid between the parties.

2. Fraud Against Creditors Not Proven: For a conveyance to be declared fraudulent under Article 1297 of the Civil Code, it must be shown that:
– There was a creditor at the time of the conveyance. The record lacked proof that Chua Pua Hermanos was a creditor of Jose H. Katigbak when the deed was executed on February 6, 1921. Their action was filed nearly a year later.
– The debtor had no other sufficient property to satisfy the creditor’s claim. The action for rescission of a fraudulent conveyance is subsidiary under Article 1294 of the Civil Code, and there was no evidence that Katigbak lacked other assets.

3. Procedural Defects: The trial court likely relied on facts from the attachment case, but these were not formally introduced as evidence in this case. Moreover, in an action for rescission or nullity of a contract, all parties (including Jose H. Katigbak) should be joined.

DISPOSITIVE PORTION:
The judgment appealed from is reversed, and the case is remanded for a new trial. Chua Pua Hermanos may present evidence to prove they were creditors at the time of the conveyance and that Katigbak had no other sufficient property. Jose H. Katigbak must be joined as a party to the cross-complaint. No costs awarded.